Income from House property is computed by taking what is called Annual Value.  From this, deduct Municipal Tax paid and you get the Net Annual Value. From this net annual value following deductions are available under section 24 of the Income Tax Act 1961:

• Standard Deduction (Section 24(a)) – 30 per cent of the net annual value is deductible irrespective of any expenditure incurred by the taxpayer.
• Interest on Borrowed Capital (Section 24(b)) – Interest on borrowed capital is allowable as deduction on accrual basis if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property.

However the amount of said deduction for interest in respect of a self occupied property shall be as under:

• Where the property is constructed or acquired with capital borrowed on or after 01.04.1999 and such acquisition or construction is completed before 3 years from the end of the financial year in which capital was borrowed the amount of deduction shall be limited to Rs. 1, 50,000 with effect from assessment year 2002-2003.
• In other cases deduction is limited to Rs. 30,000 for the amount borrowed prior to 01.04.1999.

It may be noted that interest payable by an assessee in respect of funds borrowed for the purpose of acquisition or construction of house property prior to the previous year in which such property has been acquired or constructed is deductible in 5equal installments commencing from the previous year in which the house is acquired or constructed.

In case of self occupied property, for which annual value has been taken as nil none of the above deductions except the interest on borrowed capital subject to limit mentioned above is admissible.

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