Deductions from annual value
(i) There are two deductions from annual value. They are:
Deductions provided under Section 24 are exhaustive.
1. 30% of NAV is allowed as deduction under Section 24(a)
- (a) This is a flat deduction and is allowed irrespective of the actual expenditure incurred.
- (b) The assessee will not be entitled to a deduction of 30% in the following cases, as the annual value itself is nil:
- (i) In the case of self-occupied properties or
- (ii) In the case of property held as stock-in-trade, and the whole or any part of the property is not let out during the whole or any part of the previous year, up to 2 years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority.
2. Interest on borrowed capital is allowed as deduction u/s 24(b)
- Interest payable on loans borrowed for the purpose of acquisition, construction, repairs, renewal, or reconstruction can be claimed as a deduction.
- Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforesaid purposes is also admissible as a deduction.
Interest for pre-construction period:
- Pre-construction period is the period prior to the previous year in which the property is acquired or construction is completed.
- Interest payable on borrowed capital for the period prior to the previous year in which the property has been acquired or constructed (Pre-construction interest) as reduced by any part thereof allowed as deduction under any other provision of the Act, can be claimed as deduction over a period of 5 years in equal annual installments commencing from the year of acquisition or completion of construction.
Interest for the year in which construction is completed/property is acquired:
- Interest relating to the year of completion of construction/acquisition of property can be fully claimed in that year irrespective of the date of completion/acquisition.
(ii) Deduction in respect of self-occupied or unoccupied property where annual value is nil
(1) Under default tax regime under Section 115BAC:
- There would be no deduction on account of interest on loan under Section 24(b) under the default tax regime under Section 115BAC in respect of the property referred to in Section 23(2), i.e., self-occupied or unoccupied property.
(2) Under optional tax regime (normal provisions of the Act):
- In case assessee has exercised the option of shifting out of the default tax regime provided under Section 115BAC(1A), the assessee will be allowed a deduction on account of interest (including 1/5th of the pre-construction period interest)
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