Detail of section 24(b) house property (about interest)

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CA. Afjal Y Hamirani (Querist)
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23 August 2011 hello sir/madam,

please give me detail of section 24(b) related to house property.i wants to detail of deduction of interest on constrution,acquisition of house property.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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23 August 2011 (ii) interest on borrowed capital (S. 24(b))Interest on borrowed capital is allowable as deduction on accrual basis (even if account books are kept on cash basis)if capital is borrowed for the purpose of purchase, construction,repair, renewal or reconstruction of the house property.
The following aspects concerning claim for deduction of interest are to be kept in view:(i) The interest is deductible on ‘payable’ basis i.e. on accrual basis. Hence it should be claimed on yearly basis
even if no payment has been made during the year.
(ii) For claiming interest, it is not necessary that the lender should have a charge on the property for the principal
amount or the interest amount.
(iii) In Shew Kissan Bhatter v. CIT (1973) 89 ITR 61 (SC) the Supreme Court has decided that interest payable for outstanding interest is not deductible.
(iv) Taxpayer cannot claim deduction for any brokerage or commission paid for arranging loan either as a one time
arrangement or on periodical basis till the loan continues.
(v) In terms of circular No. 28 dated 20th August 1969, if an assessee takes a fresh loan to pay back the earlier loan, the interest on the fresh loan would be deductible.
(vi) Interest on borrowing can be claimed as deduction only by the person who has acquired or constructed the property with borrowed fund. It is not available to the
successor to the property (if the successor has not utilized borrowed funds for acquisition, etc). In other
words, the relationship of borrower and lender must come into existence before it can be said that any amount or any other money is borrowed for the purpose
of construction, acquisition, etc., of house property by one person from another and there must be real transaction of borrowing and lending in order to amount
to any borrowing.
(vii) In case of Central Government employees, interest on house building advance taken under the House Building
Advance Rules (Ministry of Works and Housing) would be deductible on the basis of accrual of interest which would start running from the date of drawal of advance.
The interest that accrues in terms of rule 6 of the House Building Advance Rules is on the balances outstanding on the last day of each month - Circular No. 363, dated June 24, 1983.
(viii) Any interest chargeable under the Act, payable out of India on which tax has not been paid or deducted at source, and in respect of which there is no person in
India who may be treated as an agent, is not deductible,
by virtue of Section 25, in computing income chargeable under the head “Income from house property”. Interest for pre-construction period Money may be borrowed prior to the acquisition or
construction of the property. In such a case, interest paid/ payable before the final completion of construction or
acquisition of the property will be aggregated and allowed for five successive financial years starting with the year in which the acquisition or construction is completed. This deduction is not allowed if the loan is utilized for repairs, renewal or reconstruction.

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