# Deductions from Net Annual Value [Section 24]

After arriving at Net Annual Value (NAV) (= GAV − Municipal Taxes paid), only two deductions are permitted under Section 24. No other expense (electricity, salary to watchman, collection charges, etc.) is allowed.

## Deduction 1 — Standard Deduction: 30% of NAV [Sec 24(a)]

A flat 30% of NAV is allowed, regardless of actual repair/maintenance spend.
It is allowed irrespective of actual expenses incurred.
If NAV is taken as Zero (e.g., self-occupied property with Nil AV), the 30% deduction is also NIL (30% of 0).
If part of the property is used for business/profession, the attributable actual expenses are claimed under PGBP, not the 30% here.

## Deduction 2 — Interest on Borrowed Capital [Sec 24(b)]

Interest is allowed on an accrual basis (not payment basis) for acquisition, construction, repairs, renewal or reconstruction.

Rules:

Loan can be borrowed from any person (not only banks).
A fresh loan taken to repay the original loan → interest on the fresh loan is also deductible.
Interest on late payment of interest is NOT deductible (penal interest fails the test).
If sale price is paid in installments with interest to the seller, the unpaid price is treated as borrowed capital, and interest on it qualifies under Sec 24(b).

## Interest is computed in TWO parts

1. Pre-Construction Period Interest (PCPI) — interest before the year of completion.

2. Current Year Interest (CYI) — interest from the year of completion onwards.

> Total Interest Deduction = PCPI + CYI

## Interest Certificate [Sec 25]

To claim the interest deduction, obtain a certificate from the lender specifying total interest payable and any outstanding/refinanced loan.
Interest on a loan borrowed outside India is NOT deductible if TDS is not deducted and there is no agent in India [Sec 25].

Worked example

### Example 1

Example (30% deduction): A let-out property has GAV ₹5,00,000 and municipal taxes paid ₹40,000.

NAV = ₹5,00,000 − ₹40,000 = ₹4,60,000
Standard deduction = 30% × ₹4,60,000 = ₹1,38,000
This ₹1,38,000 is allowed even if actual repairs cost only ₹10,000 (or nothing).

### Example 2

Example (Self-occupied, NAV = 0): For a self-occupied house, GAV = Nil, so NAV = 0.

30% standard deduction = 30% × 0 = Nil.
Only the interest deduction (subject to limits) remains available — and only under the optional regime.

⚠️ Common exam mistakes

Allowing 30% deduction on actual repair expenses — it is a flat 30% of NAV regardless of what was actually spent.
Claiming the 30% standard deduction when NAV is taken as zero — 30% of zero is zero.
Deducting interest on a payment basis — Sec 24(b) interest is allowed on ACCRUAL basis.
Claiming interest on late payment of interest (penal interest) — it is specifically not deductible.
Forgetting that unpaid installment purchase price counts as borrowed capital eligible for interest deduction.

Reference: Section 24 — Income-tax Act, 1961

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