IT exemption for Interest paid on House Property-Various Scenarios

The provisions under Section 22 to Section 27 of Income tax Act, covers deduction of interest on house loan from the total income.

But, these provisions do not allow direct deduction of house loan interest from the income. The deduction is actually allowed while we incur net loss on house property.

In the cases, where the rent received on your house property exceeds the interest paid property tax paid and 30% rebate of annual rental value for maintenance, it is an income from house property and the same has to be included in your annual income.

In the case of self occupied property it is almost a direct deduction from the salary income.

However, the home loan interest allowed for deduction is restricted to a maximum of Rs.1, 50, 000.

When the property is given on rent, the annual rental value has to be taken in to account for calculating interest or loss on house property.  In such cases there is no restriction in the interest of home loan that can be taken for calculating income or loss on house property

Check this GConnect calculator meant for calculating Income or loss on House property for more details.

There are three circumstances under which the annual rental value of a self-occupied/vacant property is treated as nil.

Firstly, where the owned property is located in a city different from where the assessee works and because of this he is unable to occupy the owned premises and stays in a rented premises in the city in which he works. In this case he will be able to take the annual rental value of such a owned property as nil since the property is not occupied by him and not rented out.

Secondly, where the property is located in the same city as the rented premises-but is in his occupation and used for the purposes of his own residence. The question that arises is, how can the assessee claim to occupy the owned property for self residence; when he is also staying in the rented premises? In fact, Section 23(4) clearly recognizes the fact that more than one house property can be occupied and used by the assessee at the same time for the purposes of his own residence.  In such cases also annual rental value of the property owned can be taken as nil.

If the property is rented out, there is no issue at all. The income (or loss as the case may be) from house property will be calculated as given above.

In all cases, the deductibility of interest paid on the home loan is not under doubt. Only the annual value could be different, based on where your case falls.

The principal amount repaid on all loans taken from specified entities such as banks/employer companies, to acquire/construct residential house property(ies) is allowed as a deduction under Section 80C; up to the overall limit of Rs. 1,00,000-mentioned in that section. This is not at all affected by the exemption of HRA in any manner.

Utility of House Property	Owned property located in	Deduction available for interest payable on loan taken to acquire/ construct the property	Annual Rental value taken to be taken	Rebate available for maintenance	Income / Loss from house property
(1)	(2)	(3)	(4)	(5)	(6)
Rented out	Any place	Yes, without any limit	Actual rent received less municipal taxes	30% of the annual value	(4)-(5)- (3)
Utilised for occasional occupation by self or kept vacant	Another city, different from the city in which you work	Yes, up to a maximum of Rs. 1,50,000	NIL	NIL	Loss equivalent to lower of (3) or Rs. 1,50,000
Utilised for occasional occupation by self	Same City in which you work	Yes, up to a maximum of Rs. 1,50,000	NIL		Loss equivalent to lower of (3) or Rs. 1,50,000
Kept vacant	Same city in which you work	Yes, without any limit	Notional rent that you could have derived, had you rented out the property less municipal taxes	30% of annual value	(4)-(5)- (3)