Relevant Income Tax Provisions for availing Housing Loan Benefits or Housing

Loan Benefits and HRA Exemptions Together

Note: This discussion is relevant only if you are claiming Housing Loan benefits
or Housing loan benefits and HRA exemptions together. If it is applicable in your
case, an additional detail along with provisional Housing Loan Certificate needs
to be submitted with your tax declaration. The format of additional details is
available in the file having Tax Declaration Form.
For salaried employees, Income from House Property is the second common source of income mainly
because several employees take housing loan to purchase/construct their house and avail deductions for
Housing Loan repayments and interest. Considering this the relevant provisions are discussed as under:
Self Occupied or Let out Property: As per Income Tax Act, a house Property is taxable either as self
occupied [u/s 23(2)(a) or 23(2)(b)] or as let out[(u/s 23(3) or 23(4)(b) as deemed let out) .
As per section 23(2)(a), a house property is considered as self occupied if it is in occupation by the owner
throughout the previous year (i.e. not actually let during whole (or any part) of the financial year and nor
put to some other use). Further in case a house property is not occupied due to employment/working at
any other place and nor it is let out during the whole( or any part of the Previous year) and no other
benefit is derived from the said property and the person reside at the place of working in a rented
accommodation, income from such house property shall be determined u/s 23(2)(b) as if it was a self
occupied property.
In case the house property is let out for the whole or any part of the year that will be taxable as let out
house property u/s 23(3). And where a person owns more than one self occupied property, one at his
option shall be taxable as deemed let out u/s 23(4)(b).
Computing income from House Property:
a. Income from Self occupied HP:
Income of a self occupied house property (u/s 23(2)(a) or u/s 23(2)(b) as the case may be shall be
computed as under:
Gross Annual value (i.e. Rental Income)
nil)
Less: Municipal Tax paid
Less: Deduction for interest
on housing loan u/s 24(b)

Net Income

Nil

(Annual value of self occu house is considered

Nil
Nil

(it is not allowed for self occupied house)

XXXX maximum upto Rs 2,00,000 (maximum

Rs.30,000 if
loan is for renovation/repair/alteration/ addition
etc)
_______
_______

In case of deduction for housing loan interest on self occupied property, net income always results in ve
and it is set off with other +ve income for tax purposes.
b. Income from Let out HP:
Income of a let out house u/s 23(3) or deemed let out house u/s 23(4)(b) shall be computed as under:
Reasonable Expected Rent

XXXXX

suppose 2,50,000/- 2,20,000/-

(Reasonable expected rent here means the rent fetched by a similar property in same or similar
area/location)
Annual Actual Rent Received/Receivable
Less unrealized Rent if any
XXXXX
2,40,000/- 2,40,000/Higher of the Reasonable Expected Rent or
Annual Actual Rent Received/Receivable

XXXXX

2,50,000/-

Less: Loss due to vacancy

Gross Annual Value u/s 23(1)

XXXXX
XXXXX

30,000/30,000/2,20,000/- 2,10,000/-

Less: Municipal Tax actually paid

Net Annual Value

XXXXX
XXXXX

10,000/10,000/2,10,000/- 2,00,000/-

Less: Deductions
Standard deduction u/s 24(a)
Interest on loan u/s 24(b)
purchase,

XXXXX
XXXXX

2,40,000/-

(30% of Net Annual value)

(actual interest amount on loan for
construction,renovation/repair/alteration/
addition etc)

Net Income

_______
XXXXX

In case the net income arrived for a let out house property is ve and it is set off with other +ve income for
tax purposes.
If owns more than one house property: If an individual owns more than one house property, the
income of each house will be separately computed depending on their use (i.e. self occupied or let out).
But if the individual has two or more self occupied house properties, then the income of one house(at his
choose) will be calculated as per as self occupied and the income of all others will be calculated as
deemed to be let out u/s 23(4)(b) considering income at expected rent (i.e. rent prevailing of similar house
in same location) as already discussed above.
Similarly if one house is self occupied and other is laying vacant, then the income of vacant house will be
calculated as deemed to be let out considering income at rent prevailing of similar house in that location.
Here it is important to know that you may also have to pay wealth tax on the second house as only one
residential property is exempt from it. However, if you give your second house on rent for more than 300
days in a year, it will not be subject to wealth tax. Thus, it is important to understand the tax implications
of more than one property for proper compliance.
Deductions other than Housing Loan Payments:
a. Loss due to Vacancy: For computing income of a let out property the Rental Value (i.e. higher of the
reasonable expected rent or rent actually received) is first adjusted for loss due to vacancy and the
resultant value is called Gross Annual Value.
b. Municipal Tax Paid: This deduction is allowed for let out property only from Gross Annual Value and
the resultant value comes Net Annual Value.
c. 30% Standard Deduction: This is also allowed for Let out or Deemed Let out properties only. This is
allowed from Net Annual Value.
Deductions for Housing Loan Payments:

a. Deduction for interest on housing loan u/s 24: Deduction for housing loan interest is allowed as
under:
i. In case of self occupied property:
-upto Rs. 2,00,000/-upto Rs. 30,000/- if housing loan is taken for construction of a new house or purchase a
house before 01/04/2009.
-upto Rs. 30,000 only if loan is for renovation of house.
ii. In case of Let out house property:
-There is no ceiling on deduction for interest on housing loan (i.e. entire interest amount
is allowed).
In case the house loan was for the construction of a new house, 1/5 of the pre EMI interest (i.e. interest
paid during construction upto year preceding to the financial year in which construction has completed) is
also allowed over 5 years starting from the Financial year in which construction has completed. However
in case of self occupied house, the overall deduction limit for interest deduction would remain the same
(i.e. Rs 2,00,000/-).
b. Deduction for housing loan repayment (for construction of new house or purchase only) u/s
80C: This deduction is allowed subject to overall limit of Rs. 1,50,000/- which is inclusive of deduction for
other tax savings investment eligible under this section which includes, LIC premium, employees cont. to
EPF, PPF, NSC-VIII, ULIP, 5yrs FDR with scheduled banks or post office, stamp duty, registration fee
and other specified expenses incurred for the purpose of the house property and Tution fee for children
etc.
In case of construction loan, this deduction is allowed only for repayments made after completion of
house and all the benefit of tax availed u/s 80C would be reversed if house property is sold within 5 years
from purchase/construction.
Here it must be noted that this deduction is not available if the loan is taken for alteration, addition or
renovation or repair of the house property for which a completion certificate is already available.

Conditions for Deduction for Housing Loan Payments:

a. No deduction during construction: As per Act, deductions for housing loan (for interest u/s 24 and
for repayments u/s 80C) are available only if the income of relevant house property is chargeable to tax
during the year. Alternative it can be said that housing loan repayment/interest deductions are not
available during the construction stage and start only from the year in which construction is completed
and/or possession is taken. For properties situated within the municipality or within any area developed
by urban development authorizes, the completion certificate/possession letter issued by such authorizes
is the conclusive evidence of completion/possession.
For exact understanding on how to claim these deductions, please read para c Deduction for Pre
construction EMI interest & repayments given herein after.
b. Owner and borrower both: A house property is taxable in the hand of its legal owner/owners. So for
availing Housing loan benefits, one shall be owner or co-owner (joint owner) of the property as well as
borrower or co-borrower in the housing loan.
i. Deduction in case of Joint ownership/co-ownership: In joint property, income from house
property shall be taxable in the proportion of ownership and the housing loan benefits shall be
claimed in the proportion to the housing loan payments made/to be made by the respective
owners subject to their proportion in ownership. The deduction limits specified u/s 24 for interest

& u/s 80C for repayments would apply separately to each co-owner. Further be noted that a coowner, who is not a co-borrower, is not entitled to these benefits and similarly, a co-borrower,
who is not a co-owner, cannot claim these deductions. In case, ownership is not defined in
ownership documents, the income shall be considered in proportion of investments was/is made
by the respective co-owners.
ii. Deemed Owner: As per provisions of section 27(1), an individual who transfers house property
otherwise than for adequate consideration to his or her spouse (not being a transfer in connection
with an agreement to live apart) or to his minor child (not being a married daughter), is treated as
Deemed Owner of the house property for the purpose of computing income from house property.
Considering this provision the income of such house property will be computed in the hand of
transferor as if it was never transferred.
c. Deduction for Pre construction EMI Interest & repayments:
i. In case EMI starts after completion of construction: In this case repayments are started
from the date of completion of construction and only pre EMI interest is paid during construction,
the deductions would be allowed as under:
U/s 24: Pre EMI interest refers to the interest paid during construction upto the year
preceding to the financial year in which construction is completed. The deduction of Pre
EMI interest is allowed in 5 equal annual installments along with the interest paid for the
financial years of completion and the 4 subsequent financial years. In case of self
occupied house property, the overall limit of deduction is limited upto Rs 2,00,000/-. For
example, a house is completed in FY 2014-15 and total interest paid on housing loan for
upto FY 2013-14 was Rs. 2,00,000/- and interest for FY 2014-15 is Rs 1,80,000/-. In such
case, deduction for FY 2014-15 will be allowed for Rs 2,00,000/- ( i.e. Rs
1,80,000+2,00,000/5=Rs 2,20,000 or maximum limit of deduction Rs 2,00,000/whichever is lower). However in case of let out property there in so such limit. If above
example is considered for let out property, deduction for FY 2014-15 would be for Rs
2,20,000/- ( i.e. Rs1,80,000+2,00,000/5).
ii. In case EMIs is opted since before the completion of construction: In some cases
borrowers opt to start EMIs payment (which includes interest & repayments) before completion of
construction of their house property. In such case, housing loan deductions starts as follows:
U/s 24: The deduction for Interest paid during construction is allowed in exact manner as
discussed above under sub para (ii).
U/s 80C: The deduction for the repayments of housing loan principal amount will start
from the financial year in which construction has completed and amount of deduction
would be for the amount repaid after the completion of construction/getting the
possession only. So in respect of principal amount repaid before the completion of
construction/getting possession of the house, no benefit shall be availed under this
section.
HRA Exemption as well as Housing Loan Benefits: Some employees claim HRA Exemption as well as
Housing Loan Benefits, however, these both can be claimed only in select circumstances. So for correct
compliance, the relevant provisions are discussed as under:
a. If House Property is not occupied due to employee working at any other place and nor it is let
out during the whole( or any part of the Previous year) and no other benefit is derived from the
said property and employee reside at the place of work in a rented accommodation: In such case,
income from house property will be computed u/s 23(2)(b) as if it was a self occupied property despite the

fact it was not actually self occupied(as per provisions of section 23(2)(a)). The rental income will be
considered nil and deductions u/s 24(b) for Interest and u/s 80 C for repayments will be allowed as
discussed for a self occupied house property in a earlier para and besides this he will also be allowed
HRA exemption for rent paid for the accommodation hired at the place of work.
Here it is important to note that during the year no other benefit shall be derived from such property.
Under Income Tax Act, taxable income of each individual is taxed separately. If the above property is
used by family, parents or any other relative of the employee without paying rent, then the income of the
property cant be assessed u/s 23(2)(b) and if an employee still wish to avail HRA and housing loan
benefits both, the fair rental value of the property shall be offered for tax under the head Income from
house property.
b. If House Property owned at a place other than where employee works and it is let out and at
the place of work he is staying in rented accommodation: In this case, HRA Exemption and Housing
Loan deductions (u/s 24(b) for interest & 80C for repayments) both can be claimed by declaring the rent
paid for the rented accommodation and rental income earned from let out property.
c. If House Property is owned in the same city where employee works (for this purpose, Delhi
NCR is treated as one city) but it is not self-occupied nor let out during the whole or any part of
the Previous year and the employee stays in a rented accommodation:
In such situation both the deductions cant be allowed because proviso of section 23(2)(b) discussed
above under sub para (a) doesnt cover this situation and if someone still wants to claim the property as
self occupation u/s 23(2)(a) then how can he claim that he is residing in a rented premises and paying
rent. So the only options to get both the deductions are; let out owned property and declares its income
else declare the expected rental income for tax considering the vacant property as deemed let out.
d. If employee own a let out House Property in the same city where you work (for this purpose,
Delhi NCR is treated as one city) and he stay in a rented accommodation: In such situation, HRA
Exemption and Housing Loan Benefits (u/s 24(b) for interest & 80C for repayments) both can be claimed
by declaring rent paid for rented accommodation and rental income earned form the let out house
property.