Income Tax 2025

Appearance

Deductions from income from house property. ​

22(1) ​

The income under the head “Income from house property” shall be computed after allowing the following deductions:––

  • (a) 30% of the annual value;
  • (b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.

22(2) ​

In case of property or properties referred to in section 21(6), the aggregate amount of deduction under sub-section (1)(b) shall not exceed—

  • (a) two lakh rupees, subject to the following conditions:–– (i) the property has been acquired or constructed with borrowed capital and such acquisition or construction is completed within five years from the end of tax year in which capital was borrowed; (ii) if capital is borrowed during any period prior to the tax year in which the property has been acquired or constructed, any interest payable for the said prior period shall be allowed as a deduction in five equal instalments for the said tax year and for each of the four immediately succeeding tax years; (iii) the assessee furnishes a certificate from the person to whom interest is payable on such capital; and (b) thirty thousand rupees in any other case.

22(3) ​

The deduction under sub-section (2)(a)(ii) shall be computed after reducing any amount already allowed as a deduction under any other provisions of this Act.

22(4) ​

The certificate referred to in sub-section (2) shall specify––

  • (a) the amount of interest payable on capital borrowed; and
  • (b) the interest payable on any new loan, where subsequent to the capital borrowed, the assessee has taken any such loan for repayment of whole or any part of such capital.

22(5) ​

The aggregate of the amounts of deduction under sub-section (2) in respect of properties of the nature referred to in section 21(6) shall not exceed two lakh rupees.

22(6) ​

Any interest chargeable under this Act which is payable outside India shall not be allowed as a deduction under this section, if—

  • (a) tax has not been paid or deducted on such interest under Chapter XIX-B; and
  • (b) in respect of such interest, there is no agent in India as per section 306.
Explanation

Section Summary: ​

This section outlines the deductions allowed for computing income under the head "Income from house property." It specifies the deductions for expenses like interest on borrowed capital and standard deductions (30% of the annual value) for property income. It also introduces limits and conditions for claiming deductions, particularly for properties acquired or constructed with borrowed capital.

Key Changes: ​

  1. Standard Deduction: The 30% deduction on the annual value of the property remains unchanged from the previous law.
  2. Interest on Borrowed Capital: The deduction for interest on borrowed capital is now subject to specific limits and conditions:
    • A maximum deduction of ₹2 lakh is allowed if the property is acquired or constructed within 5 years of borrowing the capital.
    • If the property is acquired or constructed after 5 years, the deduction is capped at ₹30,000.
  3. Interest Paid Outside India: Interest paid outside India is not deductible unless tax has been deducted or paid under Chapter XIX-B, and there is an agent in India as per section 306.

Practical Implications: ​

  1. For Homeowners:
    • If you have taken a loan to buy or construct a house, you can claim a deduction for the interest paid, subject to the ₹2 lakh limit (if the property is completed within 5 years).
    • For properties completed after 5 years, the deduction is limited to ₹30,000.
    • You must provide a certificate from the lender specifying the interest amount to claim the deduction.
  2. For Taxpayers with Multiple Properties:
    • The aggregate deduction for interest on borrowed capital across all properties cannot exceed ₹2 lakh.
  3. For Non-Residents or Foreign Payments:
    • Interest paid outside India is only deductible if tax has been deducted or paid in India, and there is an agent in India.

Critical Concepts: ​

  1. Annual Value: The expected rental income of the property, determined as per the Income Tax Act.
  2. Borrowed Capital: Loans taken for acquiring, constructing, repairing, renewing, or reconstructing the property.
  3. Certificate from Lender: A document from the lender specifying the interest amount payable on the borrowed capital.
  4. Chapter XIX-B: Pertains to the deduction of tax at source (TDS) on interest payments.
  5. Section 306: Deals with the appointment of an agent in India for non-residents.

Compliance Steps: ​

  1. Documentation:
    • Obtain a certificate from the lender specifying the interest amount payable on the borrowed capital.
    • Ensure the certificate includes details of any new loans taken to repay the original loan.
  2. Reporting:
    • Report the annual value of the property and claim the 30% standard deduction.
    • Claim the interest deduction under the appropriate limit (₹2 lakh or ₹30,000) based on the property's completion timeline.
  3. Tax Deduction at Source (TDS):
    • Ensure tax is deducted or paid on interest paid outside India, and an agent is appointed in India if required.

Examples: ​

  1. Scenario 1: Mr. A buys a house in 2023 with a loan and completes construction in 2025. He pays ₹2.5 lakh in interest in 2025. Since the property is completed within 5 years, he can claim the full ₹2 lakh as a deduction.
  2. Scenario 2: Ms. B buys a house in 2018 with a loan but completes construction in 2026. She pays ₹1.5 lakh in interest in 2026. Since the property is completed after 5 years, she can only claim ₹30,000 as a deduction.
  3. Scenario 3: Mr. C pays ₹1 lakh in interest to a foreign lender. If tax has not been deducted or paid under Chapter XIX-B, and there is no agent in India, he cannot claim this interest as a deduction.

This section ensures clarity on deductions for property income while introducing safeguards to prevent misuse, especially for interest payments on borrowed capital.