Tag: Interest On Borrowed

Management Notes

Deduction’s u/s 22 – a) Standard Deduction b) Interest on Borrowed

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Under the Income tax Act, 2025, Section 22 provides deductions while computing income chargeable under the head “Income from House Property.” The section mainly allows two important deductions: 30% of the annual value as standard deduction and interest payable on borrowed capital used for acquiring, constructing, repairing, renewing or reconstructing the property. These deductions are allowed after determining the annual value under Section 21.

a) Standard Deduction [Section 22(1)(a)]

A standard deduction of 30% of the annual value is allowed while computing income from house property. The deduction is allowed irrespective of the actual amount spent by the owner on repairs, maintenance, insurance, electricity, security or other expenses relating to the property. Therefore, the taxpayer does not have to prove the actual expenditure incurred on maintenance.

Formula:

Standard Deduction = 30% × Annual Value

For example, if the annual value of a house property is ₹5,00,000:

Standard Deduction = ₹5,00,000 × 30% = ₹1,50,000

Thus, ₹1,50,000 will be allowed as deduction while computing income from house property.

b) Interest on Borrowed Capital [Section 22(1)(b)]

Where a house property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the interest payable on such borrowed capital is allowed as a deduction, subject to the specific limits and conditions applicable to the property. For a let out property, the interest deduction is generally allowed without a monetary ceiling under Section 22(1)(b).

For certain self occupied properties, the aggregate deduction for interest is restricted to ₹2,00,000, where the prescribed conditions are satisfied, including completion of acquisition or construction within the specified period and furnishing the required certificate. In other cases, the applicable limit is ₹30,000.

Interest relating to the period before acquisition or construction of the property is allowed in five equal instalments, beginning from the tax year in which the property is acquired or construction is completed.

Computation

Annual Value
Less: 30% Standard Deduction
Less: Interest on Borrowed Capital
= Income from House Property

Management Notes

Deductions u/s 24 from Net Annual Value

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After determining the Net Annual Value (NAV) of a house property, certain deductions are allowed under Section 24 for computing taxable income from house property. The section mainly provides deductions for standard deduction and interest on borrowed capital. These deductions are available subject to prescribed conditions. The deductions help determine the actual taxable income or loss arising from a house property.

1. Standard Deduction under Section 24(a)

Under Section 24(a), a standard deduction of 30% of the Net Annual Value is allowed while computing income from a let out house property. This deduction is available irrespective of the actual expenditure incurred by the owner on repairs, maintenance, collection of rent or other related expenses. Therefore, the taxpayer does not need to provide separate evidence of actual repair expenses for claiming this deduction. For example, if the Net Annual Value is ₹3,00,000, the standard deduction will be ₹90,000. The deduction is generally available for let out and deemed let out properties. For a self occupied property having Nil annual value, this deduction does not apply.

2. Interest on Borrowed Capital under Section 24(b)

Under Section 24(b), deduction is allowed for interest payable on borrowed capital used for acquisition, construction, repair, renewal or reconstruction of a house property. The amount of deduction depends upon the nature and use of the property and the applicable conditions. For a qualifying self occupied property, the deduction may be available up to the prescribed limit, subject to conditions. For a let out property, interest is generally deductible while computing income from the property, subject to the applicable provisions. Interest relating to the period before completion of construction may also receive treatment under prescribed rules. The deduction helps reduce taxable income from house property.

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