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16/08/2016

SELFOCCUPIEDHOUSEPROPERTYTAXBENEFITSANDIMPLICATIONS|TAXVANI

ELFOCCUPIEDHOUSEPROPERTYTAXBENEFITS
ANDIMPLICATIONS

Owningahouseiseverybodysdream.Duringthe
last few years prices of properties have sky
rocketed,ithasbecomeverydifficultforanaverage
persontoownadreamhousewithoutborrowingmoney.Inorder
tohelpapersoninrealizingthedreamofOwningahouse,The
GovtprovidesnumbersofincentivessuchasInterestSubvention
onHousingLoansforsmallhouses,IncomeTaxExemptionsand
rebates, which in turn can also give a boost to the economy in
addition to providing dwelling unit to all the Indians up to best
possibleextent.IncometaxLawsfromtimetotimehasprovided
various tax benefits on buying a house, which has reduced
thecostofbuyingintheformofTaxSops.
Themajortaxsopsaretheinterestamountpaidbythepersonon
theborrowedmoneyandrepaymentofprincipalofLoanamount
tobeallowedasdeductionfromincome.
Alsobuyingahouseisoneofthetopmostprioritiesformodern
professionalanditisboughtforlivingaswellasinvestment
reasonsasitisconsideredsafeinvestment.Taxexemptionon
homeloansmeansapersoncansaveaconsiderableamountof
moneyontaxesifhehastakenahomeloan.
TheIncomeTaxActdividestheincomereceivedbyapersoninto
fivedifferentheads.Oneofthemistheincomefromhouse
propertythatcomprisesofthebenefitsderivedbyaperson
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SELFOCCUPIEDHOUSEPROPERTYTAXBENEFITSANDIMPLICATIONS|TAXVANI

throughtheproperty(s)ownedbyhim/her.Herewearegoingto
discussaboutsomeimportantprovisionsofincometaxrelatingto
Incomefromhousepropertyinrespectofpropertieswhichare
selfoccupied/consideredtobeselfoccupiedintheincometax
law.
Aspersec.23(2)(a),ahousepropertyshallbetermedasself
occupiedproperty,wheresuchpropertyorpartthereof:
Isintheoccupationoftheownerforthepurposeofhisown
residence
Isnotactuallyletoutduringthewholeoranypartofthe
previousyearand
Nootherbenefittherefromisderivedbytheowner.
Note:Ifanassesseeletouthishousetohisemployer,whoin
turngivesthesametotheassesseeasRentFree
Accommodation,suchhousewillnotbetreatedasselfoccupied,
asheisnotoccupyinghisownhouseinthecapacityofowner.
Asperprovisionsofsection23(2)(a)annualvalueofsuch
houseshallbetakentobenil,iftheconditionsmentioned
belowaresatisfied:
1.theproperty(orpartthereof)isnotactuallyletduringwhole(or
anypart)ofthepreviousyearand
2.nootherbenefitisderivedtherefrom
Ifanassesseeoccupiesmorethanonehousepropertyasself
occupied,heisallowedtotreatonlyonehouseasselfoccupied
athisoption.Theremainingselfoccupiedhousepropertiesshall
betreatedasDeemedtobeletout.
Ifanassesseehasahousepropertywhichconsistsoftwoor
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SELFOCCUPIEDHOUSEPROPERTYTAXBENEFITSANDIMPLICATIONS|TAXVANI

moreresidentialunitsandallsuchunitsareselfoccupied,the
annualvalueoftheentirehousepropertyshallbetakenasnil,as
thereisonlyonehousepropertythoughithasmorethanone
residentialunits.
Whocanclaimthebenefitu/s23(2)?
Benefitu/s23(2)(a)cannotbeclaimedbyaCompanyandFirm.
HUFisallowedbenefitofselfoccupationofresidenceu/s23(2)
[CITvHariprasadBanojnagarwala(2012)342ITR69(Guj.)(FB)
].
Whentheassesseeoccupieshishousebutnotinthecapacity
ofowner,thebenefitunderthissectioncannotbeclaimed.
Optiontochooseaparticularpropertyasselfoccupiedcanbe
changedeveryyearwithoutanypermission.
HowtoComputetheIncomeofselfOccupiedProperty
Netannualvalueofselfoccupiedpropertyshallbetakenasnil.
Standarddeductionu/s24(a)of30%ofNetAnnualValue(NAV)
isallowed.HenceforSelfOccupiedPropertyonecannotclaim
deduction.Interestonloanu/s24(b)shallbeallowed,subject
tocertainceiling.
NetAnnualvalue
Netannualvalueofoneselfoccupiedhouseproperty,atthe
choiceoftheassessee,istakenasnil.Hecanchoosethathouse
propertyasselfoccupied,throughwhichtaxliabilitycanbe
reduced.
Tomakethedreamcometrueofhouse,peopleneedtobe
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SELFOCCUPIEDHOUSEPROPERTYTAXBENEFITSANDIMPLICATIONS|TAXVANI

prudent/understandaboutcertaintaxconsiderationsas
givenbelow:
Interestonborrowedcapital(loan)forselfoccupiedproperty
u/s24(b)
Interestonloantakenforconstruction,acquisition,repair,
renovationorextensionisallowedasunder:
Whereloanistakenonorafter01/04/1999andfollowing
conditionsaresatisfiedRs.1,50,000isallowedasdeduction
underIncomeTaxAct
Loanisutilizedforconstructionoracquisitionofhouseproperty
onorafter01/04/1999
Suchconstructionoracquisitioniscompletedwithin3years
fromtheendoffinancialyearinwhichthecapitalwasborrowed
and
Thelendercertifiesthatsuchinterestispayableinrespectof
theloanusedfortheacquisitionorconstructionofthehouseor
refinanceoftheearlierloanoutstanding(principalamount)taken
fortheacquisitionorconstructionofthehouse.
Inanyothercasei.e.loanistakenbefore01/04/1999orProperty
isrepaired,renewedorreconstructedadeductionofRs.30,000
isallowed.
WhileclaimingdeductionunderSection24(b),assessee
shouldkeepfollowingpointsinmind:
Inanycasedeductionu/s24(b)cannotexceedRs.150000ina
year.
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Forclaimingincometaxdeduction,theEquatedMonthly
Installments(EMI)amountisdividedintotheprincipaland
interestcomponents.Therepaymentoftheprincipalamountof
loanisclaimedasadeductionundersection80CoftheIncome
TaxActuptoamaximumamountofRs.1lakh.
Deductionundersection80CisallowedonlyforPurchaseor
ConstructionofHousePropertyandnotforRepair,renewalor
reconstructionofthehouse.
Thereisaperceptionamongthegeneralpublicthatforclaiming
interestdeduction,thehomeloanshouldbetakenfrombanksor
specifiedfinancialinstitutions.Inrealitythisisnotso.Assessee
canborrowthemoneyfromanybodyincludinghisrelativesand
claimthebenefitsofinterestagainsthishouseproperty.This
benefitofinterestcanbeclaimedonlyagainstacertificate
furnishedbythepersontowhomanyinterestispayableonthe
capitalborrowed,specifyingtheamountoftheinterestpayableby
theassessee.
Asfarastheprincipalpaymentsoftheloantakenotherthan
frombanksorspecifiedfinancialinstitutionsareconcerned,they
wouldnotqualifyfortaxbenefitu/s80C,asloansonlyfrom
notifiedinstitutionsandbanksareeligibleforsuchdeductions.
Assesseecanavailthebenefitofsection24(b)evenifhehas
actuallynotpaidtheinterestbutithasonlybeendue.
Whatareconsequencesifthehousepropertyistransferred
within5yearsofacquisition
Aspersec.80C(5)(iii)(a),ifapersonclaimingHouseloan
repaymentbenefitundersection80Ctransfersthehouse
propertywithin5yearsfromtheendofFinancialyearinwhich
housepropertyhasbeenpurchased,thenallthebenefitsavailed
underthissection(80C)ofearlieryearswillbereversedand
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includedinthetaxableincomeoftheyearinwhichhousehas
beensold.
HowtoavailBenefitofInterestattributabletotheperiod
priortocompletionofconstruction
Mostofthepeoplewhosehouseisunderconstructionare
confusedashowtoclaimtheexemptionontheinterestpaidon
housingloanwhichisunderconstruction.Insuchcasesloanis
takenearlierandacquisitionorcompletionofconstructiontakes
placeinlateryear.Sothereisinterestpayableduringtheperiod
ofloantakenandcompletionofconstructionoractualacquisition,
insuchcasesinterestpaidorpayablefortheperiodpriortothe
previousyearinwhichthepropertyisacquiredorconstructedwill
beaggregatedandallowedinfivesuccessivefinancialyears
startingfromtheyearinwhichtheacquisitionorconstructionis
completed.However,thiswillbewithintheoveralllimitu/s24(b)
oftheAct.
Forexample:Mr.BtookloanofRs.10,00,000on01042010
fromabankfortheconstructionofahouse.Theloancarriesan
interest@10%pa.Theconstructioniscompletedon15062012.
Theentireloanisstilloutstanding.
InthiscaseinterestallowablefordeductionforA.Y.201314will
be
1.InterestfortheP.Y.201213onRs.10,00,000@10%is
1,00,000
2.Interestforthepreconstructionperiodi.e.from01042010to
31032012(1/5thofRs.2,00,000)i.e.Rs.40,000
TotalinterestallowableisRs.1,40,000

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Cananassesseeclaimthedeductionofinterestu/s24(b)on
accrualbasis?
TheCircularNo.363dated24.6.1983issuedbytheGovernment
hasprovidedagreatrelieftothepersonswhohavenotactually
paidtheinterestonloanborrowedfortheconstructionofthe
house.Asperthecircular,itisimmaterialwhethertheinterest
hasbeenactuallypaidornotduringtheyear.Itwouldbe
deductibleonaccrualbasis.Alsothereshouldbenexusbetween
CapitalBorrowedandtheexpenditureincurredontheacquisition,
construction,repair,reconstructionofthepropertyfromthis
borrowingandtheinterestpaidthereon.
Fromtheabovediscussionitbecomesclearthattheprovisionof
deductionofinterestisagreatrelieftothetaxpayersasithelps
theminreducingthetaxliabilityandatthesametimehelpsyou
increatingownasset.
BenefitofSection24(b)wherethepropertyisownedbyco
owners
Wherethehouseisownedbytwoormorepersons,andtheir
respectivesharesaredefiniteandascertainable,thenhomeloan
benefitsunderincometaxareavailableinproportiontothe
ownershipstructure.
Forexample:Ifthehusbandandwifeownshousein50:50ratio
thebenefitsoftheinterestunderSection24(b)aswellasthe
principal&paymentsunderSection80Carealsosharedinthe
sameproportion.Inthiscaseboththehusbandandwifecan
claiminterestdeductionofRs.1,50,000/30,000andrepayment
uptoRs.1,00,000intheirproportionateshare.
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ExampleofComputationofincomefromSelfOccupied
Property
Mr.Aownsahouseproperty.Itisusedbyhimthroughoutthe
yearforhisandhisfamilymembersresidence.

ComputationofincomefromHousePropertywillbeas
follows:

WhetherdeductioninrespectofHRAAndIntereston
HousingLoanforSelfOccupiedPropertycanbeclaimedat
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sametime?
HouseRentAllowanceismajorcomponentofsalarystructureof
anindividualtaxpayer.Thisallowanceisprovidedtothe
assesseebyhisemployertomeetexpenditureactuallyincurred
onpaymentofrentofhouseoccupiedbytheassessee.
U/s23(2):Selfoccupiedpropertymeans:
Wherethepropertyconsistsofhouseorapartofhousewhich
isintheoccupationforthepurposeofhisownresidence,or
Cannotactuallybeoccupiedbytheassesseeowingtohis
employmentatanyotherplace.
Theremaybetwoscenarios:
a)Theassesseeispayingrentandinterestforpropertyinsame
city,or
b)Theassesseeispayingrentandinterestforpropertyin
differentcities.
Incasethecityisdifferent,thebenefitofbothcaneasilybe
taken.
Incasethecityissame,theassesseehastovalidatethenexus
ofresidingataplaceotherthanhisownresidential
accommodation.ThenexushastobevalidatedtotheAO
(AssessingOfficer)(CITv.Mr.JusticeAvadhBihariRohtagi).
AdditionallyiftheassesseefulfilstheconditionsprescribedU/s
10(13A)inrespectofHRA,thedualbenefitcaneasilybetaken.
AffordableHousingwithintroductionofsection80EE
From01.04.2013,FirstTimeHouseBuyerswillgetextra
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deductionofRs1.00lakhi.e.overandaboveRs.1.5Lacsunder
section80EE.Thissectionhasbeenintroducedtocatertothe
needforaffordablehousing.Conditionstobesatisfiedunderthis
sectionare:
AdditionaldeductionisavailabletoonlyIndividuals.
BenefitofSection80EEisavailableonly,ifassesseehasno
existinghouseinhisname.
Assesseehasboughtanewhouse,andcostofthehouseis
maximumofRs40lakhs
theloanissanctionedbythefinancialinstitutionduringthe
periodbeginningon1stApril,2013andendingon31stMarch,
2014
LoandoesnotexceedRs25lakhs
Then,theExtrainterestdeductionofRs1,00,000/isallowable
undersection80EE.
Thistemporaryschemeisfor1yearonly.
Benefitforsection80EEisavailableforfreshinvestmentfor
Firsttimehousebuyers

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