WHAT IS PRE CONSTRUCTION PERIOD:-

  • While computing income chargeable to tax under the head "Income from house property" in case of a let-out property, the taxpayer can claim deduction undersection 24(b)
  • Deduction on account of interest is classified in two forms,interest pertaining to pre-construction period and interest pertaining to post-construction period.
  • Post-construction period interest is the interest pertaining to the relevant year (the year for which income is being computed).
  • Pre-construction period is the period commencing from the date of borrowing of loan and ends on earlier of the following:Interest pertaining to pre-construction period is allowed as deduction in five equal annual instalments, commencing from the year in which the house property is acquired or constructed.
    • Date of repayment of loan; or
    • 31st March immediately prior to the date of completion of the construction/acquisition of the property.
  • Thus, total deduction available to the taxpayer undersection 24(b)

TAX TREATMENT IF A PERSON OCCUPIED MORE THAN ONE PROPERTY FOR HIS RESIDENCE:-

  • The Self occupied benefit (treating property as SOP and claiming GAV as Nil) is available only in respect of one property occupied by the owner for his residence.
  • If a person occupies more than one property for his residence, then the SOP benefit will be granted only in respect of any one property as selected by him and other property/properties will be treated as "Deemed to be let-out". Income from deemed to be let-out property is computed in the same manner as discussed in the case of "Let-out" Property.

AMOUNT OF DEDUCTION FOR INTEREST ON HOUSING LOAN:-

  • The provisions relating to deduction undersection 24(b)section 24(b)in respect of self-occupied property will be 1/5th of interest pertaining to pre-construction period (if any) + Interest pertaining to post-construction period (if any)
  • However, in the case of self-occupied property, deduction undersection 24(b) cannot exceed Rs.2,00,000 or Rs. 30,000 (as the case may be). If all the following conditions are satisfied, then the limit in respect of interest on borrowed capital will be Rs.2,00,000:If any of the above condition is not satisfied, then the limit of Rs. 2,00,000 will be reduced to Rs. 30,000. 
    • Capital is borrowed on or after 1-4-1999.
    • Capital is borrowed for the purpose of acquisition or construction (not for repair, renewal, reconstruction).
    • Acquisition or construction is completed within 3 years from the end of the financial year in which the capital was borrowed.
    • The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for acquisition or construction of the property.

TAX TREATMENT OF UNREALISED RENT WHICH IS SUSEQUENTLY REALISED:-

  • Any subsequently recovery of unrealized rent shall be deemed to be the income of taxpayer under the head “Income from house property” in the year in which such rent is realized (whether or not the assesse is the owner of that property in that year).

TAX TREATMENT OF ARREARS OF RENT:-

TREATMENT OF COMPOSITE RENT BELONGS TO LET OFF BUILDING ALONG WITH OTHER ASSETS:-

  • Composite rent includes rent of building and rent towards other assets or facilities. The tax treatment of composite rent is as follows:-
    • In a case where letting out of building and letting out of other assets are inseparable (i.e., both the lettings are composite and not separable, e.g., letting of equipped theatre), entire rent (i.e. composite rent) will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”, as the case may be. Nothing is charged to tax under the head “Income from house property”
    • In a case where, letting out of building and letting out of other assets are separable (i.e., both the lettings are separable, e.g., letting out of refrigerator along with residential bungalow), rent of building will be charged to tax under the head “Income from house property” and rent of other assets will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”, as the case may be. This rule is applicable, even if the owner receives composite rent for both the lettings. In other words, in such a case, the composite rent is to be allocated for letting out of building and for letting of other assets.

TREATMENT OF COMPOSITE RENT BELONGS TO LET OFF BUILDING ALONG WITH SERVICE CHARGES:-

  • In such a case, composite rent includes rent of building and charges for different services (like lift, watchman, water supply, etc.): In this situation, the composite rent is to be bifurcated and the sum attributable to the use of property will be charged to tax under the head “Income from house property” and charges for various services will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources” (as the case may be).

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