TDS on salary – full concept – with example
CLICK HERE FOR PART  1
CLICK HERE FOR PART  2
CLICK HERE FOR PART  4
Part 3:  Deduction of Interest under House
property  Section 24 (b)
Applicability:

a.
An
employee owned a house property (let out
or self occupied)
b.
The
property is not in use for any business activity by the employee
c.
An
employee has taken loan for the purpose of acquisition, construction,
repairment, renewal or reconstruction of such owned house property
Limits
of maximum interest allowed as deduction under section 24(b): 
Loan Taken

Self Occupied

Let Out

For Repair or Renewal

Rs 30,000 p.a

Rs 30,000 p.a

For Acquisition or construction of the house

Before 1.4.99 – Rs 30,000 p.a
After 1.4.99 – Rs 1,50,000

No maximum limit is provide under the law

Note:  Such
acquisition or construction is completed within three years from the end of the
financial year in which capital was borrowed
Example 1:  House property is self occupied
House loan taken


To purchase property
On 10112011

Rs 1,00,00,000

Interest rate 10%

Rs 10,00,000 (assumed)

Solution: 
Deduction allowed under section 24(b)


Interest Paid @ 10%

Rs 10,00,000

Maximum interest allowed under law

Rs 1,50,000

Hence deduction of interest under section 24 (b) Rs
1,50,000 only.
Example 2:  House property is self occupied
House loan taken


To purchase property
On 01042010

Rs 1,20,00,000

Annual Installment

Rs 15,00,000 (of principal only)

Interest rate 10%

Of the principal amount

Solution: 
Principal

Amount

On 142010

Rs 1,20,00,000

Less : Ist Installment for
201011

(Rs 15,00,000)

Balance on 142011

Rs 1,05,00,000

Less : Ist Installment for
201112

(Rs 15,00,000)

Balance on 142012

Rs 90,00,000

Less : Ist Installment for
201213

(Rs 15,00,000)

Balance on 142013

Rs 75,00,000

Less : Ist Installment for
201314

(Rs 15,00,000)

Balance on 31032014

Rs 60,00,000

Assumed interest is calculated after the payment of
principal
Deduction allowed
under section 24(b)


Interest Paid @ 10%
60,00,000*10%

Rs 6,00,000

Maximum interest allowed under law

Rs 1,50,000

Hence deduction of interest under section 24 (b) Rs
1,50,000 only
Example 3:  House property is self occupied and not constructed in
three years
House loan taken


To construct property
On 01042009

Rs 2,40,00,000

Annual Installment

Rs 20,00,000 (of principal only)

Interest rate 10%

Of the principal amount

House property constructed on

31.01.2014

Solution: 
Principal

Amount

On 142009

Rs 2,40,00,000

Less : Installment for 200910

(Rs 20,00,000)

Balance on 142010

Rs 2,20,00,000

Less : Installment for 201011

(Rs 20,00,000)

Balance on 142011

Rs 2,00,00,000

Less : Installment for 201112

(Rs 20,00,000)

Balance on 142012

Rs 1,80,00,000

Less : Installment for 201213

(Rs 20,00,000)

Balance on 142013

Rs 1,60,00,000

Less : Installment for 201314

(Rs 20,00,000)

Balance on 31032014

Rs 1,40,00,000

Assumed interest is calculated after the payment of
principal
To Claim deduction of Rs 1,50,000 the condition (house
must be constructed within three years) must be satisfied. Otherwise deduction
will be limited to Rs 30,000 only instead of Rs 1,50,000.
Deduction allowed under section 24(b)


Interest Paid @ 10%
1,40,00,000*10%

Rs 14,00,000

Maximum interest allowed under law
(as property is not constructed within 3 years)

Rs 30,000

Hence deduction of interest under section 24 (b) Rs 30,000
only
Pre Construction
Interest: 
As per Section 24(b) ““Where the
property has been acquired or constructed with borrowed capital, the interest,
if any, payable on such capital borrowed for the period prior to the previous
year in which the property has been acquired or constructed, as reduced by any
part thereof allowed as deduction under any other provision of this Act, shall
be deducted under this clause in equal installments for the said previous year
and for each of the four immediately succeeding previous years:]””
Applicability: 
Loan taken for
Construction

Loan taken for
purchase

a. For the period before house is
constructed
b. Interest of such period is
summed up and deducted in 5 equal installments

a. For the period before the house
is under acquisition of person
b. Interest of such period is
summed up and deducted in 5 equal installments

Meaning: 
a. Deduction of interest is allowed
only from the year when the house is fully constructed or has been acquired
b. No deduction of interest for the
period when the house property is under construction or not in acquisition.
Example 1: 
House loan taken


To construct property
On 01042011

Rs 15,00,000

Annual Installment

Rs 1,00,000 (of principal only)

Interest rate 10%

Of the principal amount

House property constructed on

31.01.2014

Solution: 
a. House is constructed with in 3
years
b. Deduction of interest will be
allowed from the year 201314 only, as house is constructed only in 201314 only
c. Interest paid before 201314 will
be treated as pre construction interest will be allowed in 5 equal
installment
Principal

Amount

Interest

Balance on 142011

Rs 15,00,000


Less : Installment for 201112

(Rs 1,00,000)

For 201112
14,00,000*10% = 1,40,000

Balance on 142012

Rs 14,00,000


Less : Installment for 201213

(Rs 1,00,000)

For 201213
13,00,000*10% = 1,30,000

Balance on 142013

Rs 13,00,000


Less : Installment for 201314

(Rs 1,00,000)

For 201314
12,00,000*10% = 1,20,000

Balance on 31032014

Rs 12,00,000

a. House is constructed in 201314
(31.01.2014) hence interest paid on 201314 will be allowed in 201314
b. Interest paid prior to the period
201314 will be considered as pre construction interest
In simple meaning: 
Pre Construction period:
From the date of Loan taken i.e. 142011
TO
The previous year to the year when house is constructed
(house constructed on 31012014 hence previous year is 31032013)
So period of pre construction is 142011 to 31032013)
Amount of Pre Construction interest is Interest for
201112 and 201213 i.e. Rs 2,70,000
(1,40,000+1,30,000)
Which is allowed in 5 equal Installments starting from the
year of construction
Deduction of Pre Construction Interest Allowed as: 
Year

Details

Amount

201314

Year of Construction
270000/5

Rs 54,000

201415

270000/5

Rs 54,000

201516

270000/5

Rs 54,000

201617

270000/5

Rs 54,000

201718

270000/5

Rs 54,000

Deduction allowed under section 24(b)


Interest Paid @ 10%
12,00,000*10% = 1,20,000
Add:  Pre Construction Interest
i.e. Rs 54,000

Rs 1,74,000

Maximum interest allowed under law

Rs 1,50,000

Hence deduction of interest under section 24 (b) Rs 1,50,000
only
Example 2: 
House loan taken


To construct property
On 01042012

Rs 10,00,000

Annual Installment

Rs 1,00,000 (of principal only)

Interest rate 10%

Of the principal amount

House property constructed on

31.01.2014

Solution: 
a. House is constructed with in 3
years
b. Deduction of interest will be
allowed from the year 201314 only, as house is constructed only in 201314
only and not before
c. Interest paid before 201314 will
be treated as pre construction interest will be allowed in 5 equal
installment
Principal

Amount

Interest

Balance on 142012

Rs 10,00,000


Less : Installment for 201213

(Rs 1,00,000)

For 201213
9,00,000*10% = 90,000

Balance on 142013

Rs 9,00,000


Less : Installment for 201314

(Rs 1,00,000)

For 201314
8,00,000*10% = 80,000

Balance on 31032014

Rs 8,00,000

a. House is constructed in 201314
(31.01.2014) hence interest paid on 201314 will be allowed in 201314
b. Interest paid prior to the period
201314 will be considered as pre construction interest
In simple meaning: 
Pre Construction period:
From the date of Loan taken i.e. 142012
TO
The previous year to the year when house is constructed
(house constructed on 31012014 hence previous year is 31032013)
So period of pre construction is 142012 to 31032013
Amount of Pre Construction interest is Interest for
201213 i.e. Rs 90,000
Which is allowed in 5 equal Installments starting from the
year of construction 201314
Deduction of Pre Construction Interest Allowed as: 
Year

Details

Amount

201314

Year of Construction
90,000/5

Rs 18,000

201415

90,000/5

Rs 18,000

201516

90,000/5

Rs 18,000

201617

90,000/5

Rs 18,000

201718

90,000/5

Rs 18,000

Deduction allowed under section 24(b)


Interest Paid @ 10%
8,00,000*10% = 80,000
Add:  Pre Construction Interest
i.e. Rs 18,000

Rs 98,000

Maximum interest allowed under law

Rs 1,50,000

Hence deduction of interest under section 24 (b) Rs 98,000
only
By CA
Ashish Barthwal
If have any query:
 contact ca_ashishbarthwal@yahoo.com
No comments:
Post a Comment