Loss from house property can now be set off for eight subsequent financial years

As per the recent amendments effective from the FY2017-18, the house property loss incurred in a financial year has been capped at Rs2 lakh


I own two residential properties. One is self- occupied and other is rented out. Only the self-occupied one has a home loan, which fetches a tax deduction of Rs2 lakh on the interest paid. I want to know if I will get a higher tax benefit if I rent out another residential property.

—Vishal Sharma

The quantum of tax deduction for interest on home loan depends upon whether the residential property against which the loan has been availed is a self-occupied property (SOP) or a let-out property (LOP) or deemed to be let out property (DLOP).

With respect to SOP, the interest deduction is restricted to Rs2 lakh per financial year (FY) whereas in LOP, the entire interest paid can be claimed against the taxable rental value. The taxable rental value is determined by factoring the specified deductions such as municipal taxes and standard deduction of flat 30% of the net rental value, which means, the gross rent minus municipal taxes. Please note that full facts, such as the terms of rental income and the quantum of home loan interest, would be required to understand whether this would result in an additional tax benefit by actually letting out the SOP for the FY2017-18 or renting out one more property. Just for your information, as per the recent amendments effective from the FY2017-18, the house property loss incurred in a financial year (which till now could be entirely set-off against any other income earned during the same financial year) has been capped at Rs2 lakh per financial year. Accordingly, you can set off aggregate loss up to Rs2 lakh incurred from both the house properties (after considering the deduction towards interest on housing loan as mentioned earlier) against any other income, if any, earned during the same financial year. The balance unadjusted house property loss incurred during the financial year can be carried forward for set-off against house property income for up to 8 subsequent financial years.

I want to gift some shares to my son when he turns 20 years old, at the end of this year. I have held the shares for about 5 years now. Will such a transfer attract taxes?

—Rajesh Hariharan

If an individual receives any property (other than immovable property), from any person during any financial year without consideration, the fair market value (FMV) of which exceeds Rs50,000, then the entire FMV of such property shall be taxable under the head ‘income from other sources’. The FMV will have to be calculated as per the specified method prescribed in Rule 11UA of the Income tax Rules, 1962. However, an exemption is available if the same is received from a relative, which includes amongst others, parent of an individual. As the shares would be received by your son as gift, there should not be any tax implications in his or your hands at the time of receiving and gifting the shares.

However, with respect to the transaction, it would be prudent to have appropriate documentation in place substantiating the gift transaction.

Further, as the shares would be gifted to your son, who is a major (i.e. attained the age of 18 years), the clubbing provisions will also not be applicable. Accordingly, the dividend or capital gains arising from subsequent sale of shares, if any, by your son shall be taxed in his hands only.

How is entertainment allowance taxed?

—Yogesh Upadhyaya

We have assumed that you are a salaried employee and receive entertainment allowance from the employer. This allowance would be taxable as salary and accordingly the employer would be liable to withhold taxes at the appropriate tax rate at the time of payment.

Parizad Sirwalla is partner (tax), KPMG

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