According to Section 24 of the IT Act, a flat deduction of 30 percent is allowed on the net value of the property. However, if the property is self-occupied, the deduction is ‘nil’ irrespective of the payment of the municipal tax or not. In simple terms, if the owner has bought the property entirely on his own without any help from any housing finance institutes or banks, then he can claim a deduction of Rs 30 for every Rs 100. But if the property is self-occupied then the same is not true.
The income from the property is taxed on the basis on the net annual value and not the gross annual value. The net value of the property is derived from deducting the tax amount incurred towards playing the municipal body. This section also applies to the case where the buyer has taken help from banks of financing institutions to buy, renovate, construct or repair the property.
If the property is not generating any income then the borrower can claim the deduction of Rs 2 lacs on the home loan interest paid in a financial year. In case the property is generating income due to rentals then the entire home loan interest component is deductible. This is to encourage the property owners to let out their properties for rentals.
Conditions apply:
Three conditions under which the borrower can claim the deduction:
- The loan must have been taken after April 1, 1999
- Must have the certificate from the lender about the interest calculation
- Work should have been completed within 5 years of taking the loan.
According to the Section 24, “Where the property has been acquired or constructed with borrowed capital, the interest shall be deducted in equal instalments for the said previous year and each of the four immediately succeeding previous years.” The option is not applicable if the money from the loan is used for repairs and improvements.
If the borrower has paid more than Rs 2 lacs s interest, then they have the option to carry their additional expense forward for another three years to set off the losses.