Section 25 of the Income Tax Act lays down a specific disallowance: certain types of interest payments are not deductible when computing income under the head “Income from House Property.”
🚫 What Is Not Deductible:
Even though Section 24(b) allows deduction for interest on borrowed capital, Section 25 overrides it in the following case:
Interest payable outside India is not deductible if:
> – It is chargeable under the Act, and
> – Tax has not been paid or deducted at source under Chapter XVII-B, and
> – There is no person in India who can be treated as an agent under Section 163.
In simpler terms:
if you borrow money from a non-resident lender and fail to deduct TDS (or pay tax on their behalf), you lose the deduction for that interest—even if the loan was used for acquiring or constructing the property.
🧾 Example:
Suppose Mr. Arvind takes a loan from a foreign bank to buy a house in India. He pays ₹5 lakh in interest but doesn’t deduct TDS or designate an agent in India for the lender. Under Section 25, this ₹5 lakh is not deductible from his rental income—even though it would normally qualify under Section 24(b).
