Rental income received by taxpayers is taxable under " Income from House Property". However Income Tax Act, 1961 has provided some expenditures under Section 24 which can be claimed as deduction.
There are 2 deductions eligible to be deducted from the Net Annual Value of house property namely:
a) Standard Deduction of 30% of NAV.
b) Interest on housing loans.
- What is Standard Deduction?
There might be various expenses that are spent to maintain the house property such as repairs, maintenance, depreciation, etc. To cover all these expenses, the Income-tax Act provides a standard deduction of 30% from the Net Annual Value of house property. It is presumed that all the expenses (excluding Interest on housing loan) are covered in this 30% limit and no deduction or expenses in addition to this limit is available to the taxpayer even if actual expenses are higher than the standard deduction.
(Note- This standard deduction is available to the owner taxpayer even if no expenses are incurred by him or all the expenses are incurred by the tenant).
2. Interest on housing loan-
If the taxpayer has borrowed a housing loan to purchase or to construct a house property, then he is required to pay EMI to the bank or any other lender. This EMI consists of 2 parts namely Interest & principal.
Deduction of interest part can be claimed from the income of house property whereas deduction of the principal amount in case of residential house property can be claimed U/s. 80C.
Deduction for housing loan interest depends upon the type of house property. The amount available for deduction in each type is as follows-
i) Self-occupied house property:
If the housing loan is taken to purchase or construct the property, then a maximum interest of Rs. 2,00,000/- can be claimed by taxpayers during a financial year.
Further, if the loan is taken to renovate or repair the property, then a maximum interest of Rs. 30,000/- can be claimed by taxpayers during a financial year.
ii) Let out or deemed to be let out property:
There is no ceiling limit for claiming deduction of interest on housing loan on let out property.
Pre-construction interest:- The interest paid on a housing loan when the house property is under construction is known as “Pre-construction Interest”. The deduction of such pre-construction interest is allowed in 5 equal instalments starting from the year when construction completes.