1. Facts of the Case
- Mr. X owns 3 house properties.
- 2 houses are self-occupied.
- 1 house is let out (rented and generating rental income).
- Mr. X has taken home loans for all the properties.
- He has paid ₹3,00,000 as interest on loan for the 2 self-occupied properties.
- He has paid ₹2,50,000 as interest on loan for the let-out property.
Mr. X now seeks to determine how much deduction of interest he is eligible to claim under the head “Income from House Property” for tax purposes.
2. Issues in the Case [Questions]
- How many house properties can be treated as self-occupied under the Income Tax Act?
- What is the maximum deduction allowed under Section 24(b) for self-occupied property/ies?
- Is there a limit on the deduction for interest paid on let-out property?
- How should Mr. X optimize his deduction claims across the three properties?
3. Legal Principles Covered to Support Case Proceeding and Judgements
A. Section 23(4) – Deemed Self-Occupation
- As per the amendment made by Finance Act, 2019, with effect from A.Y. 2020–21, an individual can treat up to two house properties as self-occupied.
- Earlier only one self-occupied property was allowed.
B. Section 24(b) – Deduction of Interest on Borrowed Capital
- For self-occupied property:
- Maximum deduction allowed: ₹2,00,000 (combined for both properties).
- The property must be constructed/acquired within 5 years from the end of the financial year in which capital was borrowed.
- For let-out property:
- Entire interest on borrowed capital is allowed as deduction without any upper limit.
- However, loss under house property (after all deductions) can be set off only up to ₹2,00,000 against other heads of income in a financial year. The balance loss is carried forward up to 8 years.
4. Possible Judgement / Computation
Treatment for Mr. X’s Properties:
| Type of Property | Interest Paid | Deduction Available | Remarks |
|---|---|---|---|
| Self-Occupied 1 | Part of ₹3,00,000 | ₹2,00,000 (combined for 2 SO properties) | Capped |
| Self-Occupied 2 | Part of ₹3,00,000 | Included above | Capped |
| Let-Out Property | ₹2,50,000 | ₹2,50,000 | Full deduction allowed |
Summary of Deductions Under Section 24(b):
- For Self-Occupied Properties (SO1 + SO2):
Allowed Deduction = ₹2,00,000 (maximum combined limit) - For Let-Out Property:
Allowed Deduction = ₹2,50,000 (entire amount eligible)
➤ Total Deduction under Income from House Property = ₹4,50,000
However, note the loss from house property can only be set off against other income up to ₹2,00,000 in the current year. Remaining loss (if any) is carried forward.
Final Judgement
- Mr. X can claim ₹2,00,000 as deduction under Section 24(b) for interest on loans of two self-occupied properties combined.
- He can also claim ₹2,50,000 as interest deduction for the let-out property, as there is no limit on deduction for let-out properties under Section 24(b).
- Total eligible deduction under house property = ₹4,50,000.
- However, loss from house property that can be adjusted against other heads in the same year is restricted to ₹2,00,000, and remaining unadjusted loss will be carried forward.
