• Jun 11, 24
• bhushanbjain
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The term “rent actually received or receivable” is used in the context of income tax to determine the taxable income from a rental property. This term is important because it determines the amount of rent that is subject to tax, as well as the amount of deductions that can be claimed against that rent.

Actual Rent Received

Actual rent received is the amount of money that a taxpayer has actually received from a tenant for the rental of a property. This includes any advance rent that has been paid, as well as any security deposits that are held by the taxpayer.

Rent Receivable

Rent receivable is the amount of money that a taxpayer is entitled to receive from a tenant for the rental of a property, even if it has not yet been paid. This includes any rent that is due but has not yet been paid, as well as any rent that is accrued but has not yet been due.

Gross Annual Value

The gross annual value (GAV) of a property is the notional rent that the property could be expected to fetch if it were let out at its full rental potential. This is an important concept for income tax purposes because it is used to determine the maximum amount of rent that can be received from a property without it being considered taxable income.

Taxable Income from Rental Property

The taxable income from a rental property is the difference between the GAV of the property and the deductions that are allowed against that rent. Deductions that can be claimed against rental property income include:

• Municipal taxes paid on the property
• Interest on a loan taken out to purchase the property
• Repairs and maintenance costs
• Standard deduction of 30% of the net annual value of the property

Example

Suppose a taxpayer owns a property that has a GAV of Rs. 100,000. The taxpayer receives Rs. 80,000 in rent from the property and pays Rs. 10,000 in municipal taxes. The taxpayer also claims the standard deduction of 30% of the net annual value of the property, which is Rs. 27,000. The taxpayer’s taxable income from the rental property is Rs. 23,000.

         COMPUTATION WITH THE HELP OF ILLUSTRATIONS   

Computation of income tax involves calculating the taxable income of an individual or entity and then applying the applicable tax rates to determine the tax liability. The process can be complex, and illustrations can be helpful in understanding the different steps involved.

Here is an illustration of the computation of income tax for an individual:

Step 1: Calculate income under each head of income

Income under the Income Tax Act is computed under the following five heads:

• Salaries: This includes income from employment, such as wages, bonuses, and commissions.
• House property: This includes income from rental properties, minus any allowable deductions for repairs, maintenance, and municipal taxes.
• Profits and gains from business or profession: This includes income from businesses or professions, minus any allowable deductions for expenses, depreciation, and interest.
• Capital gains: This includes profits from the sale of capital assets, such as property, stocks, and mutual funds.
• Income from other sources: This includes income from sources such as interest on bank deposits, winnings from lotteries, and income from foreign sources.

Step 2: Deduct deductions and exemptions

There are a number of deductions and exemptions that can be claimed against income tax liability. These include deductions for medical expenses, education expenses, charitable donations, and contributions to certain retirement plans.

Step 3: Calculate gross total income

Gross total income is the sum of income from all heads of income, minus any deductions and exemptions.

Step 4: Calculate total income

Total income is gross total income minus any deductions that are not specifically allowed under the Income Tax Act.

Step 5: Determine tax liability

Tax liability is calculated by applying the applicable tax rates to total income. The tax rates vary depending on the individual’s residential status and total income.

Step 6: Pay tax

The individual or entity is responsible for paying the tax liability to the Income Tax Department.

Here is an example of how to compute income tax using illustrations:

Example:

An individual has the following income and expenses for the financial year:

• Salary: Rs. 5,00,000
• Income from rental property: Rs. 1,00,000
• Deductions for repairs and maintenance: Rs. 20,000
• Municipal taxes: Rs. 10,000
• Profit from sale of capital asset: Rs. 2,00,000
• Interest on bank deposits: Rs. 50,000
• Deduction for medical expenses: Rs. 15,000

Computation:

Step 1: Calculate income under each head of income

• Salaries: Rs. 5,00,000
• House property: Rs. 1,00,000 – Rs. 20,000 – Rs. 10,000 = Rs. 70,000
• Profits and gains from business or profession:
• Capital gains: Rs. 2,00,000
• Income from other sources: Rs. 50,000

Step 2: Deduct deductions and exemptions

• Deduction for medical expenses: Rs. 15,000

Step 3: Calculate gross total income

Gross total income = Rs. 5, 00,000 + Rs. 70,000 + Rs. 2,00,000 + Rs. 50,000 – Rs. 15,000 = Rs. 7,65,000

Step 4: Calculate total income

Total income = Gross total income – Deductions

Step 5: Determine tax liability

Tax liability = Total income * Tax rate

                            DEDUCT MUNICIPAL TAXES

Municipal taxes are a type of tax levied by local governments, such as cities, towns, and villages, to fund public services such as roads, schools, and parks. In India, municipal taxes can be deducted from income tax under the Income Tax Act, 1961.

Deduction for Municipal Taxes on Self-Occupied Property

If you own a property and occupy it yourself, you can deduct 30% of the municipal taxes paid by you from your gross annual value (NAV) to arrive at the net annual value (NAV). NAV is the estimated annual rent that the property could fetch if it were let out.

Deduction for Municipal Taxes on Let-Out Property

If you own a property and let it out to tenants, you can deduct the entire amount of municipal taxes paid by you from your gross annual rent to arrive at the net annual rent. Net annual rent is the actual rent received by you minus the municipal taxes paid by you.

Conditions for Deducting Municipal Taxes

To claim a deduction for municipal taxes, you must meet the following conditions:

• The municipal taxes must be paid by the owner of the property.
• The municipal taxes must be paid in respect of the property for which the deduction is claimed.
• The municipal taxes must be paid for the financial year for which the deduction is claimed.

Documents Required for Claiming Deduction

To claim a deduction for municipal taxes, you must attach the following documents with your income tax return:

• Municipal tax receipt
• Property tax receipt

Claiming Deduction for Municipal Taxes in Income Tax Return

You can claim the deduction for municipal taxes in your income tax return under the head “Income from House Property”. You can file your income tax return online or offline.

                                       EXAMPLE

Maharashtra: In Maharashtra, you can deduct the entire amount of municipal tax paid on a self-occupied property from your taxable income. This deduction is available under Section 24(1)(ii) of the Income Tax Act, 1961.

Karnataka: In Karnataka, you can deduct up to 10% of the gross annual value of the property from your taxable income. This deduction is available under Rule 15 of the Karnataka Municipal Corporations   (Property Tax) Rules, 2001.

Tamil Nadu: In Tamil Nadu, you can deduct up to 50% of the municipal tax paid on a self-occupied property from your taxable income. This deduction is available under Section 24(1)(ii) of the Income Tax Act, 1961.

Andhra Pradesh: In Andhra Pradesh, you can deduct up to 100% of the municipal tax paid on a self-occupied property from your taxable income. This deduction is available under Section 24(1) (ii) of the Income Tax Act, 1961.

Telangana: In Telangana, you can deduct up to 100% of the municipal tax paid on a self-occupied property from your taxable income. This deduction is available under Section 24(1) (ii) of the Income Tax Act, 1961.

                                   FAQ QUESTIONS

What is municipal tax?

Municipal tax is a tax levied by local authorities, such as municipal corporations, municipalities, or panchayats, on properties within their jurisdiction. It is used to fund various municipal services, such as sanitation, water supply, roads, and streetlights.

2. Can I deduct municipal taxes paid by me from my taxable income under the Income Tax Act?

Yes, you can deduct municipal taxes paid by you from your taxable income under section 24(a) of the Income Tax Act. The deduction is allowed up to 30% of the net annual value of the property.

3. What is the net annual value of the property?

The net annual value of the property is the estimated rent that the property could fetch if it were let out unfurnished. It is determined by the local municipal authority.

4. Are there any conditions to claim the deduction for municipal taxes?

Yes, there are a few conditions to claim the deduction for municipal taxes:

• The property must be self-occupied or let out.
• The municipal taxes must be paid by the taxpayer.
• The municipal taxes must be paid for the property in the financial year for which the deduction is claimed.

5. Can I claim the deduction for municipal taxes if I have paid them in cash?

No, you can only claim the deduction for municipal taxes if you have paid them through traceable means, such as cheque, bank draft, or online payment.

6. What is the maximum amount of deduction for municipal taxes?

The maximum amount of deduction for municipal taxes is Rs. 30,000 per annum. However, if the municipal taxes paid by you are less than Rs. 30,000, you can claim the actual amount of municipal taxes paid.

7. Can I claim the deduction for municipal taxes if I have paid them on a property that is under construction?

Yes, you can claim the deduction for municipal taxes paid on a property that is under construction, but only for the period during which the property is occupied.

8. Can I claim the deduction for municipal taxes if I have purchased the property on loan?

Yes, you can claim the deduction for municipal taxes paid on a property that you have purchased on loan, even if the loan is not fully repaid.

9. How can I claim the deduction for municipal taxes in my income tax return?

You can claim the deduction for municipal taxes by filling up Schedule 2 of your income tax return form. You will need to provide the following details:

• Name of the municipal authority
• Property address
• Net annual value of the property
• Municipal taxes paid

10. What are the documents required to support the deduction for municipal taxes?

The following documents are required to support the deduction for municipal taxes:

• Municipal tax receipt
• Property tax bills
• Rent agreement (if the property is let out)

                                     CASE LAWS

1. Commissioner of Income-Tax v. B.P. Jalan (1982) 51 ITD 605 (SC)

This case established that municipal taxes paid by the owner of a house property are allowable as a deduction from the gross rental income under Section 24(1)(a) of the Income Tax Act, 1961. The Supreme Court held that municipal taxes are an essential expenditure for the purpose of earning income from house property and are therefore deductible under the Act.

• CIT v. Smt. Saroj Devi (1986) 86 ITD 312 (SC)

This case dealt with the question of whether municipal taxes paid by a tenant can be deducted from the gross rental income of the owner of the house property. The Supreme Court held that municipal taxes paid by the tenant are not deductible from the gross rental income of the owner. The Court reasoned that the tenant is not the person who is liable to pay municipal taxes and that the payment of municipal taxes by the tenant is a voluntary act.

• CIT v. S.A.L. Narasimha Murthy (1997) 221 ITR 123 (SC)

This case dealt with the question of whether municipal taxes paid by the owner of a self-occupied house property can be deducted from the gross rental value of the property under Section 24(1)(a) of the Income Tax Act, 1961. The Supreme Court held that municipal taxes paid by the owner of a self-occupied house property are not deductible from the gross rental value of the property. The Court reasoned that the owner is not deriving any income from the property and that the payment of municipal taxes is a personal expense.

• CIT v. M/s. A.N. Builders & Co. (1999) 236 ITR 753 (SC)

This case dealt with the question of whether municipal taxes paid by a developer on unsold flats can be deducted from the gross income of the developer under Section 24(1)(a) of the Income Tax Act, 1961. The Supreme Court held that municipal taxes paid by a developer on unsold flats are not deductible from the gross income of the developer. The Court reasoned that the unsold flats are not income-generating assets and that the payment of municipal taxes is a capital expenditure.

• CIT v. Smt. Kamala Devi (2013) 354 ITR 551 (SC)

This case dealt with the question of whether municipal taxes paid by the owner of a house property can be deducted from the gross rental income of the property even if the municipal tax assessment is in dispute. The Supreme Court held that municipal taxes paid by the owner of a house property can be deducted from the gross rental income of the property even if the municipal tax assessment is in dispute. The Court reasoned that the deduction is allowable under Section 24(1)(a) of the Income Tax Act, 1961, and that the fact that the municipal tax assessment is in dispute does not alter the nature of the expenditure.

                        DEDUCTION UNDER SECTION24-

Deductions under Section 24 of the Income Tax Act, 1961 provide tax relief for expenses incurred on acquiring, constructing, repairing, or reconstructing a house property. These deductions are available for both self-occupied and let-out properties.

Standard Deduction (Section 24(a))

For self-occupied properties, a standard deduction of 30% of the gross annual value (GAV) is allowed. The GAV is the rent the property would fetch if it were let out unfurnished.

Interest on Borrowed Capital (Section 24(b))

Interest paid on a loan taken for the purpose of acquiring, constructing, repairing, or reconstructing a house property is also allowed as a deduction. The maximum deduction for interest paid on a loan for a self-occupied property is Rs. 2 lakhs per annum. For a let-out property, the entire interest paid is deductible.

Additional Deductions

In addition to the standard deduction and interest on borrowed capital, the following deductions are also allowed under Section 24:

• Municipal taxes paid on the property
• Insurance premium paid for securing the property against fire, theft, or other risks
• Expenses incurred on repairing, renovating, or altering the property

Conditions for Availing Deductions

To avail deductions under Section 24, the following conditions must be met:

• The property must be owned by the taxpayer
• The property must be used for residential purposes
• The deductions must be claimed in the year in which the expenses were incurred

Benefits of Deductions under Section 24

Deductions under Section 24 can significantly reduce the taxable income from house property, thereby lowering the taxpayer’s tax liability. These deductions encourage individuals to invest in real estate and promote homeownership.

                                        EXAMPLE

 Who is eligible to claim a deduction under Section 24?

Any individual taxpayer who has taken a loan for the purpose of purchase, construction, repair, renewal, or reconstruction of a house property is eligible to claim a deduction under Section 24. The taxpayer must be the owner of the property and must have paid the interest on the loan.

. What is the maximum amount of deduction that can be claimed under Section 24?

The maximum amount of deduction that can be claimed under Section 24 is Rs. 2 lakhs per financial year. However, there are some exceptions to this limit. For example, taxpayers who have taken a loan for the purchase of an affordable housing property can claim a deduction of up to Rs. 1.5 lakhs per financial year.

 What are the conditions for claiming a deduction under Section 24?

The conditions for claiming a deduction under Section 24 are as follows:

• The loan must be taken from a financial institution or an approved housing society.
• The loan must be used for the specified purposes, i.e., purchase, construction, repair, renewal, or reconstruction of a house property.
• The interest on the loan must be paid by the taxpayer.
• The taxpayer must be the owner of the property.

 How is the deduction calculated under Section 24?

The deduction under Section 24 is calculated as follows:

• For self-occupied properties: The deduction is allowed on the lesser of the following:
  • The actual interest paid on the loan
  • The gross annual value of the property reduced by 30%
• For let-out properties: The deduction is allowed on the actual interest paid on the loan without any limit.
•  What are the documents required to claim a deduction under Section 24?

The following documents are required to claim a deduction under Section 24:

• Sanction letter of the loan
• Interest payment certificate
• Proof of ownership of the property
• Rental agreement (for let-out properties)

 How can I claim a deduction under Section 24?

A deduction under Section 24 can be claimed by filing an income tax return with Form 16 or Form 2. The deduction should be claimed under the head “Income from House Property.”

What if I have repaid my loan in full?

If you have repaid your loan in full, you can still claim a deduction under Section 24 for the interest paid on the loan in the year of repayment. However, you cannot claim a deduction for any interest paid after the loan has been repaid.

 What are the penalties for claiming an incorrect deduction under Section 24?

If you claim an incorrect deduction under Section 24, you may be liable to pay a penalty of up to 100% of the incorrect deduction.

                                     CASE LAWS

What is deduction under section 24?

Section 24 of the Income Tax Act allows taxpayers to claim deductions on account of interest paid on loans taken for the purpose of purchase, construction, repair, renewal, or reconstruction of a house property. The deduction can be claimed for both self-occupied and let-out properties.

Who can claim deduction under section 24?

Individuals, Hindu undivided families (HUFs), partnerships, and companies can claim deduction under section 24.

What is the maximum amount of deduction that can be claimed under section 24?

For self-occupied properties, the maximum deduction that can be claimed under section 24 is Rs. 2,00,000 or Rs. 30,000 (as the case may be). For let-out properties, there is no limit on the amount of deduction that can be claimed.

How is the deduction calculated?

The deduction is calculated as follows:

• Self-occupied properties:
  • Gross Annual Value (GAV): The GAV is the estimated annual rent that the property would fetch if it were let out.
  • Net Annual Value (NAV): The NAV is the GAV minus the municipal taxes paid on the property.
  • Deduction: The deduction is the lower of 30% of NAV or Rs. 2,00,000 or Rs. 30,000 (as the case may be).
• Let-out properties:
  • NAV: The NAV is the actual rent received from the property minus the municipal taxes paid on the property and the repairs carried out on the property.
  • Deduction: The deduction is the interest paid on the loan taken for the purpose of purchase, construction, repair, renewal, or reconstruction of the property.

What are the conditions for claiming deduction under section 24?

The following conditions must be satisfied to claim deduction under section 24:

• The loan must have been taken from a financial institution or an approved housing society.
• The loan must have been used for the specified purposes (purchase, construction, repair, renewal, or reconstruction of a house property).
• The taxpayer must be the owner of the property or must have an interest in the property.

What are the documents required to claim deduction under section 24?

The following documents are required to claim deduction under section 24:

• Loan statement from the financial institution or approved housing society
• Proof of payment of interest on the loan
• Property tax receipt

                  STANDARD DEDUCTION [SEC.24 (b)]-

The standard deduction under Section 24(b) of the Income Tax Act, 1961, allows individuals to deduct a certain amount from the gross annual value of a self-occupied house property. This deduction is meant to compensate for the expenses incurred by homeowners, such as municipal taxes, repairs, and maintenance.

For self-occupied house property:

• The standard deduction is 30% of the gross annual value of the property, or Rs. 2,00,000, whichever is less.

For let-out house property:

• The standard deduction is 30% of the gross annual value of the property, or Rs. 30,000, whichever is less.

The gross annual value of a property is the hypothetical rent that the property would fetch if it were let out on an unfurnished basis. The gross annual value is determined based on the municipal valuation of the property.

If the interest payable on a loan taken for the purpose of acquisition or construction of a self-occupied house property exceeds the standard deduction of Rs. 2, 00,000, the excess amount can be deducted under Section 24(a) of the Income Tax Act.

Here is an example of how the standard deduction under Section 24(b) works:

Let’s say an individual owns a self-occupied house property with a gross annual value of Rs. 5, 00,000. The standard deduction for this property would be Rs. 1, 50,000 (30% of Rs. 5, 00,000). This means that the individual can deduct Rs. 1, 50,000 from the gross annual value of the property, resulting in a taxable income of Rs. 3, 50,000.

The standard deduction under Section 24(b) is a valuable tax benefit for homeowners. It can help to reduce their taxable income and save them money on taxes.

                           EXAMPLE

Individual: Mr. A, an individual resident in India, purchased a self-occupied residential house property in Chennai, India, on April 1, 2023. He borrowed a loan of Rs. 50, 00,000 from a bank to purchase the property. The interest paid on the loan during the financial year 2023-24 was Rs. 3, 00,000.

Calculations:

Net Annual Value (NAV): Let’s assume the NAV of the house property is Rs. 10, 00,000.

Standard deduction under Section 24(b):

• For self-occupied residential house property, the maximum deduction under Section 24(b) is Rs. 2, 00,000.

Since the interest paid on the loan (Rs. 3,00,000) exceeds the maximum deduction limit (Rs. 2,00,000), Mr. A can claim a deduction of Rs. 2,00,000 under Section 24(b).

Therefore, Mr. A’s taxable income from the house property will be:

NAV – Standard deduction = 10, 00,000 – 2,00,000 = Rs. 8,00,000

Note: The standard deduction under Section 24(b) is subject to certain conditions, such as the loan must be borrowed from a specified institution and the property must be used for residential purposes.

FAQ QUESTIONS

Q1. What is the standard deduction under Section 24(b)?

The standard deduction under Section 24(b) is a deduction that taxpayers can claim for interest paid on loans taken for the purpose of acquisition, construction, repair, renewal, or reconstruction of a house property. The deduction is allowed irrespective of whether the property is let-out or self-occupied.

Q2. What is the maximum amount of the standard deduction?

The maximum amount of the standard deduction is Rs. 2,00,000 for self-occupied properties and Rs. 30,000 for let-out properties. However, there are some exceptions to these limits. For example, taxpayers can claim a deduction of up to Rs. 50,000 for interest paid on loans taken for the purpose of acquisition of a new house property.

Q3. Who can claim the standard deduction?

The standard deduction can be claimed by any individual or Hindu undivided family (HUF) that has incurred interest on a loan taken for the purpose of acquisition, construction, repair, renewal, or reconstruction of a house property.

Q4. How do I claim the standard deduction?

The standard deduction is claimed in the income tax return form by filling in the relevant details in Schedule 2. The taxpayer must also provide documentary evidence to support the deduction, such as a copy of the loan agreement and interest statement.

Q5. What are the conditions for claiming the standard deduction?

The following are the conditions for claiming the standard deduction:

• The loan must have been taken from a financial institution.
• The loan must have been taken for the purpose of acquisition, construction, repair, renewal, or reconstruction of a house property.
• The interest must have been paid during the financial year.
• The taxpayer must be the owner of the house property at the time of payment of interest.

Here are some additional FAQs:

Q6. Can I claim the standard deduction if I have only paid a part of the interest amount?

Yes, you can claim the standard deduction for the amount of interest that you have actually paid during the financial year.

Q7. Can I claim the standard deduction if I have sold the house property?

Yes, you can claim the standard deduction for the period up to the date of sale of the house property.

Q8. Can I claim the standard deduction if I have rented out the house property?

Yes, you can claim the standard deduction for let-out properties. However, the maximum deduction is Rs. 30,000.

                         CASE LAWS

• CIT v. K.C. Mehta (1970) 77 ITR 646 (SC): The Supreme Court held that the standard deduction of 30% of the net annual value of the house property is allowed only if the property is let out. The deduction is not allowed if the property is self-occupied.
• CIT v. Kamal Narnia Singh (1977) 107 ITR 843 (SC): The Supreme Court held that the standard deduction of 30% is allowed on the net annual value of the property, even if the actual expenditure on the property is higher or lower. Therefore, the deduction is irrespective of the actual expenditure you may have incurred on insurance, repairs, electricity, water supply, etc.
• CIT v. T.N. Singh (1968) 68 ITR 296 (SC): The Supreme Court held that the standard deduction of 30% is allowed on the gross annual value of the property, before deducting any loss due to vacancy.
• CIT v. Hiralalji Vallabhdas (1964) 53 ITR 400 (SC): The Supreme Court held that the standard deduction of 30% is allowed only if the property is let out for residential purposes. The deduction is not allowed if the property is let out for commercial purposes.
• CIT v. ShipmateIndia Devi (2003) 258 ITR 236 (SC): The Supreme Court held that the standard deduction of 30% is allowed on the gross annual value of the property, even if the property is only partially let out. The deduction is allowed on the proportionate basis of the number of days for which the property is let out.

INTREST ON BORROWED CAPITAL [SEC.24 (a)]

Interest on borrowed capital is a type of deduction that taxpayers in India can claim under Section 24(b) of the Income Tax Act. This deduction is available to individuals, Hindu Undivided Families (HUFs), partnership firms, and companies. The deduction is allowed for interest paid or payable on capital borrowed for the purpose of acquiring or constructing a house property.

Conditions for Claiming Deduction

To claim the deduction under Section 24(b), the following conditions must be met:

• The interest must have been paid or payable on capital borrowed from a financial institution.
• The borrowed capital must have been used for the purpose of acquiring or constructing a house property.
• The house property must be situated in India.

Amount of Deduction

The amount of deduction that can be claimed under Section 24(b) is limited to the following:

• For a self-occupied house property, the deduction is limited to Rs. 2, 00,000 per annum.
• For a let-out house property, the deduction is limited to the gross annual rental income or the actual interest paid, whichever is less.

Deduction for Interest on Borrowed Capital for Two Self-Occupied House Properties

With effect from Assessment Year 2020-21, individuals are allowed to claim a deduction for interest paid or payable on borrowed capital for two self-occupied house properties. However, the aggregate amount of deduction under this provision shall remain the same, i.e., Rs. 2, 00,000.

Example

Suppose an individual takes out a home loan of Rs. 50,00,000 and pays an annual interest of Rs. 3,00,000. The individual uses the loan to purchase a self-occupied house property. The individual can claim a deduction under Section 24(b) for the entire interest paid, i.e., Rs. 3, 00,000.

Benefits of Claiming Deduction

Claiming a deduction for interest on borrowed capital can significantly reduce a taxpayer’s tax liability. This deduction is particularly beneficial for individuals who have taken out large home loans.

                                   FAQ QUESTIONS

Q: What is Section 24(b) of the Income Tax Act?

Section 24(b) of the Income Tax Act allows a deduction for interest paid on capital borrowed for the purpose of acquiring, constructing, repairing, or reconstructing a house property. This deduction is available for both let-out and self-occupied properties.

Q: What is the maximum deduction I can claim under Section 24(b)?

For a let-out property, the maximum deduction is the actual interest paid on the borrowed capital. For a self-occupied property, the maximum deduction is Rs. 2 lakhs for interest paid on borrowed capital for acquisition or construction, and Rs. 30,000 for interest paid on borrowed capital for repair, renewal, or reconstruction.

Q: What is the purpose of the deduction under Section 24(b)?

The deduction under Section 24(b) is intended to encourage taxpayers to invest in real estate. By allowing a deduction for interest paid on borrowed capital, the government makes it more affordable for taxpayers to own homes.

Q: What types of interest are eligible for deduction under Section 24(b)?

Interest on borrowed capital from a financial institution, such as a bank or housing finance company, is eligible for deduction under Section 24(b). Interest paid to an individual, such as a relative or friend, is also eligible for deduction, but only if the loan is documented and the interest rate is reasonable.

Q: How do I claim the deduction under Section 24(b)?

To claim the deduction under Section 24(b), you must file your income tax return in Form ITR-2. You must also provide a document from the lender showing the amount of interest you paid during the financial year.

Here are some additional FAQs:

• Q: Can I claim the deduction under Section 24(b) if I have only paid part of the interest on the borrowed capital?

Yes, you can claim the deduction for the actual amount of interest you paid, even if you have not paid the entire amount of interest due.

• Q: Can I claim the deduction under Section 24(b) if I have not yet fully acquired or constructed the property?

Yes, you can claim the deduction for interest paid on borrowed capital used for the purpose of acquisition or construction, even if the property has not yet been fully acquired or constructed.

• Q: Can I claim the deduction under Section 24(b) if I have rented out a part of my self-occupied property?

Yes, you can claim a proportionate deduction for the interest paid on borrowed capital used for the purpose of acquisition or construction, based on the proportion of the property that is rented out.

                                     CASE LAWS

• CIT v. P.K. Parekh (2008): The Supreme Court held that interest paid on borrowed capital for the purpose of acquiring or constructing a house property is allowable as a deduction under Section 24(b) even if the loan is taken from a relative or friend.
• Rajeshwar Prasad v. CIT (2006): The Allahabad High Court held that interest paid on borrowed capital for the purpose of repairing or renovating a house property is allowable as a deduction under Section 24(b) only if the repairs or renovations are substantial in nature.
• CIT v. T.C.A. Rangarajan (2005): The Madras High Court held that interest paid on borrowed capital for the purpose of acquiring or constructing a house property is allowable as a deduction under Section 24(b) even if the loan is taken from a company in which the assesses has a controlling interest.
• CIT v. B.K. Goyal (1996): The Supreme Court held that interest paid on borrowed capital for the purpose of acquiring or constructing a house property is allowable as a deduction under Section 24(b) only if the loan is taken for the genuine purpose of acquiring or constructing the house property.
• CIT v. Keshavdas Dhanji Vora (1991): The Supreme Court held that interest paid on borrowed capital for the purpose of acquiring or constructing a house property is allowable as a deduction under Section 24(b) only if the house property is actually acquired or constructed within a reasonable period of time.