Interest on Borrowed Capital for Construction of new houses. Rules related to interest on Loan set -off Self Occupied & Deemed to let out House Property - Exercises.

1. Dr. D. Heena Cowsar
Associate Professor
heen@bonsecourscollege.in
Income from House Property
Interest on Borrowed Capital

2. Interest on loan (or)Interest on Borrowed Capital
Interest on loan is as deduction on the following consideration
 Interest on loan is allowed as deductions even if it not paid
 Loan taken to repay the previous loan is allowed as deductions
 Unpaid interest cannot be deducted.
 Brokerage or commission paid to avail loan is not allowed as
deductions
 For let out property, full interest on loan relating to previous year
can be deducted and there is no maximum limit.
 For Self occupied property the interest on loan can be deducted
subject on the following limits
1. Loan availed before 01.04.1999 – Rs. 30000 only
2. Loan availed on or after 01.04.1999 – Up to Rs. 200000
can be deducted
 Pre construction interest can be deducted in five equal
instalments.

3. Rules regarding interest on loan
 While calculating pre-completion interest the following concepts
are to be considered
•Date of Loan
•Date of Repayment
•Date of Completion
 Date of Loan is to be Considered and Date of repayment or
completion which ever is earlier is to be considered
 In case of date of repayment, the actual date of repayment should
be taken.
 In case of date of completion, 31st March immediately
proceeding the date of completion should be taken.
 Interest on pre-construction is allowed as deduction in 5 equal
installments from the previous year in which the property is
acquired.
 The first instalment is deductible in the year of completion of
construction.

4. 1. Mr. Arun had constructed a house property for which he
borrowed Rs. 600000 @11% on 01.04.2015. The construction was
completed on 31st May 2019. It was let out from 1st June 2019. Loan
amount was not repaid till date. Calculate the interest on loan to be
deducted u/s 24 for the previous year 2020 – 2021.
Note 1: Previous year interest 600000*11/100 = Rs. 66000
Note 2:
DOL - 01.04.2015
DOR – NA
DOC - 31st May 2019
Therefore the preconstruction period is 01.04.2015 to 31.03. 2019.
N3: Calculation of Interest period
2015 – 2016 12 mths
2016– 2017 12 mths
2017– 2018 12 mths
2018– 2019 12 mths
Total 48 mths
N4: Calculation of Interest on borrowed capital
Interest for PY Rs.66000
Preconstruction period interest
(66000/12*48)/5 = 264000/5
Rs. 52800
Total Interest Rs. 118000

5. Home work Problems
2. On 1st July 2015 Mr. Nair borrowed Rs. 20,00,000 @9% pa from
SBI to construct a house. The construction was completed on
30.09.2019. He did not repay the loan till date. He let out the house
from 1st October 2019. calculate the interest on loan eligible for
deduction u/s24 for the P.Y. 2020-21
1. If he let his house.
2. If he occupied the house.
3. Mr. Vijay owns a house property. 50% of the property has been let
out at a monthly rent of Rs.4000 and 50% is self occupied by
himself. The other particulars are as follows. Calculate IFHP.
MRV 60000
FRV 70000
SRV 66000
Municipal Taxes 6000
Interest on loan 20000

6. 4. Calculate IFHP from the following.
House 1 has been let out for Rs. 4800 pm. It was vacant for one
month. House 3 is let out for Rs. 6000 pm.
House I House II House III House IV
MRV 45000 54000 60000 36000
FRV 60000 66000 54000 30000
SRV NA 60000 NA 40000
Nature of Occupation L/O S/O L/O S/O
Municipal Taxes 3000 4000 2000 2000
Repairs 2000 2000 3000 3000
Collection Charges 2500 3000 4000 4000
Land Revenue due 3500 3000 4000 5000
Interest on capital on
1.1.2000
40000 30000 24000 20000

7. House I:
LOP
House II:
SOP
House III:
LOP
House IV: S/O
Or DLO
MRV 45000 - 60000 36000
FRV 60000 - 54000 30000
W.E.H 60000 - 60000 36000
SRV NA - NA 40000
ERV (W.E.L) 60000 - 60000 36000
ARV 57600 - 72000 -
GAV (W.E.H)
60000 – 4800
=55200
- 72000 36000
(-) Municipal Taxes 3000 - 2000 2000
NAV 52500 - 70000 34000
Deductions U/S 24
1. Standard deductions 30%
of NAV
15660 - 21000 10200
2, Interest on capital 40000 30000 24000 20000
Income or loss from HP -3460 -30000 25000 3800
Total IFHP -4660

8. 5. Mr. Karthikeyan furnished the following particulars regarding his
house property. 60% of the HP has been let out at a monthly rent of
Rs.9000 and 40% of it is used on Self Occupied property. The other
details are as follows.
Working Notes: Let Out Property
MRV 60% of 90000 = 54000
FRV 60% of 120000 = 72000
SRV 60% of 144000 = 86400
Municipal taxes 60% of 15000 = 9000
Interest on Borrowed capital 60% of 30000 = 18000
MRV Rs.90000
FRV Rs. 120000
SRV Rs. 144000
Municipal Taxes Rs. 15000
Interest on Borrowed capital Rs.30000

9. LOP (60%) SOP (40%)
MRV 54000 -
FRV 72000 -
W.E.H 72000 -
SRV 86400 -
ERV (W.E.L) 72000 -
Actual Rent 108000 -
GAV (W.E.H) 108000 -
Less: Municipal Taxes 9000 -
NAV 99000 -
Less: Deductions U/S 24
Standard Deductions 30% of NAV 29700
Interest on Borrowed capital 18000 12000
IFHP 51300 -12000
Total IFHP 39300