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Business News/ Politics / Policy/  Union budget 2017: Tax benefit on second house restricted to Rs2 lakh
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Union budget 2017: Tax benefit on second house restricted to Rs2 lakh

As per the The Finance Bill 2017, the owner can set off of loss towards second home against other heads of income up to Rs2 lakh under Section 71 of the Income Tax Act

At present, a buyer could deduct the entire net interest paid on the home loan. Photo: iStockPremium
At present, a buyer could deduct the entire net interest paid on the home loan. Photo: iStock

New Delhi: Tax benefit on loan repayment of second house will be restricted to Rs2 lakh per annum, Finance Bill 2017 has proposed, a move that may hit hard those making big savings so far as there have been no limits on set off from such property.

As per the proposal, the owner can set off of loss towards second home against other heads of income up to Rs2 lakh under Section 71 of the Income Tax Act.

Under the present dispensation there is no such limit for set off of loss from house property, which is mainly the difference between the rental income and interest on home loan. In other words, a buyer could deduct the entire net interest paid on the home loan.

“The Finance Bill, 2017 proposes to restrict such set off of house property loss to Rs200,000 per annum only. Balance loss if any will be carried forward to be set off against house property income of subsequent 8 years. Hence individual tax payers having loss of more than Rs2,00,000 will now have a higher tax outgo," KPMG partner Parizad Sirwalla said.

ALSO READ: Did you know: the difference between direct and indirect taxes

“In line with the international best practices it is proposed to insert sub-section (3A) in the said section to provide that set-off of loss under the head ‘Income from house property’ against any other head of income shall be restricted to two lakh rupees for any assessment year.

“However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years in accordance with the existing provisions of the Act," the Finance Bill 2017 said.

Till now, individuals who had let out property could set off the loss from housing property against their salary or any other income, without any upper limit. Such individuals will be allowed to carry forward the losses not claimed for up to 8 subsequent years, but the immediate relief will be capped at Rs2 lakh, Kuldip Kumar, partner and leader, Personal Tax, PwC India said.

According to Amit Singhania partner Shardul Amarchand Mangaldas the set off loss under income from house property under any other head of income has been restricted to Rs2 lakh as per the Finance Bill 2017. For instance, he said, if an individual has a second house and is earning a rental income of Rs1 lakh per annum and Rs5 lakh is the interest outgo on the housing loan so the set off loss on the housing property comes to Rs4 lakh.

As per the existing provision, he get tax relief on the entire set off of loss but as per the Finance Bill 2017, it gets limited to just Rs2 lakh, he said. At present, if an individual has a self-occupied property (SOP), there is nil income offered for tax under Section 23 of the Income Tax Act, 1961. The interest paid on acquisition of such property is allowed up to Rs2 lakh per annum under Section 24 of the Act.

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Published: 02 Feb 2017, 07:19 PM IST
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