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"Have A Self-Occupied House And Save Income Tax"

It is sometimes seen that a businessman or a professional earning a good deal of money is interested in owning a house and earning income there from. He saves some money and invests it in the construction of a house or a flat and leases it out on a lucrative rent and then feels very happy. But after some time, when the occasion to pay advance tax or to file the return of income comes, and he is asked to include the income from the house property along with other income and pay tax on the total income, he feels sorry as he is required to pay a very heavy income tax. He starts realising that the benefits may have been more had he resided in the house constructed by him.

In many cases, particularly where a person has good income from other sources and who is interested in the construction of a house of his own, were to use that house as a self- occupied house, i.e., for own residence only, he would be able to save income tax. This is because highly concessional treatment is given to income from self-occupied house property. It is provided in Section 2 3(2) of the Income Tax Act that where the property consists of one house and such house is in the occupation of the owner for the purposes of his own residence, the annual value of such a house shall be nil.


Adjustment of loss under the head “income from salary” at the time of TDS for salaried  taxpayers —Section 792(2B)

The disbursing officer is empowered to allow adjustment of loss from house property against the income from salary for the purpose of determining the TDS, i.e. the tax deductible from salary. Now the person responsible for deducting tax at source can make necessary adjustment and deduct a proper amount of tax so that the claim of refund does not arise. For this purpose the employee should submit Form No. 1 2B to the employer. This Form is now deleted but the particulars of House Property in the same proforma can be submitted to the employer.


No other deduction is allowed except interest on loan for the house. The maximum deduction is to the extent of ` 1,50,000 p.a. This is subject to the condition that the loan has been taken for constructing or acquiring a residential unit on or after 1.4.1999 and the construction of the residential housing out of such loan has been completed within prescribed time.


It may be noted here that the deduction under Section 24(1) (vi) is allowed only upto ` 30,000 in respect of interest on capital borrowed even for the purpose of repairs to the property. However, the increased deduction of ` 1,50,000 would be admissible only for the acquisition or construction of the self-occupied house property with capital borrowed on or after 1.4.1999.


As per the Finance Act, 2002 on and from the AY 2005-2006 the deduction in respect of interest on loan taken for acquisition or construction of the self-occupied house, upto

` 1,50,000 p.a. would be allowed even where the same is not completed on or after 1.4.2003, so long as the acquisition or construction is completed within 3 years from the end of the financial year in which the capital was borrowed.

Hence, a taxpayer should have a self-occupied house property with own funds and limited borrowed funds. Persons having good income from sources other than house property, who wish to own one house property can easily opt to have the house property for their own residence instead of letting out the same and using it as a means of having rental income.

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