The Union government’s decision to cap tax benefits on the purchase of a second home (as an investment) will act as a deterrent for people to use real estate as an instrument to save tax.
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Till now, if one bought a second house by taking a loan, the interest payment of the loan was treated as expenditure to acquire the asset. Therefore, the entire interest payment, minus the rental income form the property, could be deducted from the buyer’s gross earnings.
Assuming that the interest on home loan is 9-10%, loan amount is 85% of the house price and rent just 1.5-2%, the buyer could save a substantial amount. But now the government has capped the maximum deduction on interest at Rs 2 lakh to bring it on a par with similar benefit available for a self-occupied house.
Vivek Jain, a senior CA, said the government move will not only affect the attractiveness of real estate, but also affect tax-planning of existing investors. Anshul Jain, MD of Cushman and Wakefield, said the provision will be a deterrent for those looking at buying a second home. Jain said the clause means that both the interest as well as the rental income (if any) would become taxable, leaving little benefit for the owners.
The Union Budget 2017 has proposed several positive measures to strengthen the edifice of the Indian real estate sector For instance; the facilitation of capital gains taxation norms has triggered a wave of happiness in realtors and property buyers alike. Given below are few key measures that will provide the much-needed thrust.
The tax period for capital gains has been reduced to two years from three years. This means that lesser capital gain tax will be in the offing for those intending to sell their property after a span of two years of purchase, as against three years (earlier).