Interest on borrowed capital is allowed as deduction under section 24(b)
Interest on borrowed capital is allowed as deduction under section 24(b)
If any assessee has taken a loan or advance for purchase/ construction / renovation / addition / alteration / substitution or repair etc. of the house property, interest on such loan shall be allowed to be deducted under section 24(b) from NAV and interest is allowed on due basis but only simple interest is allowed i.e. interest on interest is not allowed.
The assessee can take any
number of loan.
Interest for the year for
which income. is being computed
shall be allowed
in the same year and
shall be called current
period interest. Interest
for the period
prior to the year in which the
house was purchased or. constructed shall
be called prior period interest and such interest shall
be allowed in 5 annual
equal installments starting
from the year in which the house was purchased or constructed.
E.g.
If Mr. X had taken
a loan of Rs.5,00,000 for
construction of property on 01.1 0.2016 and
interest is payable
@ 10% p.a. and the construction was completed on 30.06.2017, in this case
interest allowed under
section 24(b) shall be:
Interest for the year (01.04.2017 to 31.03.201 8) = 10% of Rs.5,00,000 =
Rs.50,000
Prior period interest =10% of Rs.5,00,000
for 6 months (from 01.10.2016 to 31.03.2017)=Rs.25,000
Prior period interest to be allowed
in 5 equal annual installments of Rs.5,000 from
the year of completion of construction i.e. in
this case, P.Y.2017-18.
Therefore, total interest deduction under
section 24(b) 50,000 + 5000 = Rs.55,000.
If any assessee has taken a new loan to repay the original loan, in such cases interest for such new loan shall be allowed in the similar manner.
As per section 25 if loan is taken from outside India, in that case also interest is allowed but the person making payment of interest should deduct tax at source or the person receiving interest should have an agent in India.
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