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Allowable Deductions for Computing Income from Let-Out Property & Self-Occupied Property

This article explains the deductions that can be claimed while computing the income chargeable to tax under the head "Income from house property" in the case of a let-out property. Only certain items can be claimed as deductions from gross annual value, and the taxpayer cannot claim deductions for any expenditure incurred other than the following:

  1. Deduction on account of municipal taxes paid by the taxpayer during the year: Municipal taxes paid by the owner during the year can be deducted. Municipal taxes due but not paid during the year cannot be deducted, and taxes borne by the tenant cannot be deducted.

  2. Deduction under section 24(a) @ 30% of Net Annual Value: The taxpayer can claim a deduction of 30% of the net annual value.

  3. Deduction under section 24(b) on account of interest on capital borrowed: The taxpayer can claim a deduction on account of interest on the loan taken for the purpose of purchase, construction, repair, renewal, or reconstruction of the property.

Deduction on account of interest paid or payable on borrowed capital in relation to a house property is classified into two forms, i.e., interest pertaining to the pre-construction period and interest pertaining to the post-construction period.


The interest pertaining to the post-construction period is the interest paid or payable on the borrowed capital pertaining to the relevant year for which the income is being computed.

The pre-construction period refers to the period commencing from the date of borrowing of the loan until the earlier of the following two events:

  • the date of repayment of the loan, or

  • 31st March immediately prior to the date of completion of the construction/acquisition of the property.

The interest pertaining to the pre-construction period is allowed as a deduction in five equal annual installments commencing from the year in which the house property is acquired or constructed.


Therefore, the total deduction available to the taxpayer under section 24(b) on account of interest will be one-fifth of the interest pertaining to the pre-construction period (if any) plus the interest pertaining to the post-construction period (if any).


Deduction limit for Interest expense:

There is no limit on the quantum of interest which can be claimed as deduction under section 24(b) in the case of a let-out property. However, in the case of a self-occupied property, the limit is Rs. 2,00,000 or Rs. 30,000, as the case may be. The limit of Rs. 2,00,000 is applicable if the following conditions are satisfied:

  1. Capital is borrowed on or after 1-4-1999.

  2. Capital is borrowed for the purpose of acquisition or construction (i.e., not for repair, renewal, reconstruction).

  3. Acquisition or construction is completed within 5 years from the end of the financial year in which the capital was borrowed.

  4. The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as a re-finance of the principal amount outstanding under an earlier loan taken for acquisition or construction of the property.

If any of the above conditions are not satisfied, then the limit of Rs. 2,00,000 will be reduced to Rs. 30,000.


Note: Starting from Assessment Year 2020-21, taxpayers are now allowed to claim a deduction for the interest paid or payable on borrowed capital for up to two self-occupied house properties. However, the total amount of deduction available under this provision remains the same, which is either Rs. 30,000 or Rs. 2,00,000, depending on the case


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