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.
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.
However, the government has allowed the carry-forward of losses to set off against the future income from property. But the gap between what was allowed earlier and now is so ..
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. CREDAI president Getamber Anand said the move would not affect the se