Budget cap on tax sop for individuals buying second home to hit property market hard

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Published: February 4, 2017 5:10:07 AM

A move that could limit investors in the real estate market, the government has capped the tax incentive that was so far available to an individual purchasing a house with the intention of earning rental income.

According to the Indian IT Act, if an individual owns two self-occupied properties, only one can be treated as a self-occupied property while the other will be considered as deemed let out.According to the Indian IT Act, if an individual owns two self-occupied properties, only one can be treated as a self-occupied property while the other will be considered as deemed let out.

A move that could limit investors in the real estate market, the government has capped the tax incentive that was so far available to an individual purchasing a house with the intention of earning rental income. This would result in a higher tax outgo for individuals who were taking the benefit of the provisions so far.

In the amendments made to Section 71 of the Income Tax Act, the Finance Bill now proposes to insert a new sub-section which provides that the maximum amount of loss from house property allowed to be set-off against other heads of income will be restricted to Rs 2 lakh in any financial year.

Any unabsorbed loss is then carried forward for the period of 8 immediate subsequent financial years. This amendment is proposed to be made effective from the financial year 2017-2018, said a note from global accounting, tax and advisory firm BDO.

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This is a change from the existing provisions where an individual was allowed to adjust the entire amount of loss from income from house property against income earned for the year from other heads of income.

With this change, the government would bring parity between the tax benefits available to an individual having a self-occupied property (SOP) on account of interest paid on the loan for acquisition of such property, and those with let out property (LOP) and deemed let out property (DLOP).

According to the Indian IT Act, if an individual owns two self-occupied properties, only one can be treated as a self-occupied property while the other will be considered as deemed let out.

Ashutosh Limaye, head (research), JLL India told FE that the move is in line with the overall thinking of the government to focus on end user requirement in the real estate sector. “It is clear that while the government is appreciating participation of investors in the realty market, the idea is that they should not dominate the sector as the thrust is on end users,” he said.

Parizad Sirwalla, partner and head (global mobility services-tax), KPMG India explains that so far, while computing the net income from house property, an individual was allowed deduction of up to R2 lakh on the interest paid on acquisition of a self-occupied property under Section 24 of the Income Tax Act.

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