January

The income tax calculator on the website of the Income Tax Department is one of the most widely used online utilities in India. It looks as though the calculator is making a mistake with regard to the set off of loss from house property against salary income. The mistake is as on 16-Jan-2018.

You may be aware that in FY 2017-18 the government introduced a limit on the loss from house property which can be set-off against amounts under other heads of income. See here for more information. In case the loss from house property is more than Rs 2 lakh, the set off is to be restricted to Rs 2 lakh. In other words, the loss from house property amount beyond Rs 2 lakh should be ignored and cannot be used for set off in the year. The income tax calculator on the Income Tax Department site considers the entire loss (from house property) amount for set off even when the loss is in excess of Rs 2 lakh. We entered some dummy data on the tax calculator to check.

As you can see on the above screenshot, the calculator considers the entire loss (from house property) amount for set off even when the loss is in excess of Rs 2 lakh. Given that we are in the last quarter of the tax year, we request the Income Tax Department to rectify this error at the earliest.

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The Income Tax Department has issued the “TDS on Salary” circular for FY 2017-18. You can take a look at it here.

Please ensure that all tasks (income tax deduction, investment proof scrutiny, etc.) related to salary TDS compliance in your organization for FY 2017-18 are carried out as per the circular.

Para 3.6.1 in the circular

Conditions for Claim of Deduction of Interest on Borrowed Capital for Computation of Income From House Property [Section 24(b)]:

Section 24(b) of the Act allows deduction from income from houses property on interest on borrowed capital as under:-

(i) the deduction is allowed only in case of house property which is owned and is in the occupation of the employee for his own residence. However, if it is actually not occupied by the employee in view of his place of the employment being at other place, his residence in that other place should not be in a building belonging to him.

There seems to be some confusion on account of the text above. The above para seems to suggest that deduction of interest on housing loan is available only in the case of house property which is owned by the employee (please see the words underlined by us in the above quote). Some question whether this means interest deduction is not available for let-out property in FY 2017-18.

Section 24(b) allows interest deduction for both self-occupied and let-out properties. Para 3.6.1 has been poorly worded and hence is misleading. It should be noted that the same para was there in past salary TDS circulars too. You may be aware that in FY 2017-18, the government introduced a limit on the loss from house property which can be set-off against amounts under other heads of income. See here for more information. Para 3.6.1, in light of the set-off limit, compounds the confusion.

Para 3.6.1 should have clearly stated that the text in the paragraph pertains only to self-occupied property and does not refer to let-out property. It is not easy for a lay person to go through sections 23, 24 and 71 of the Income Tax Act, in order to understand the conditions governing interest deduction on house property. Readers of the circular can easily misunderstand the text in para 3.6.1 and make mistakes in interest deduction computation.

The Income Tax Department should consider getting its circulars vetted by communication experts prior to their release.

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