New Income Tax Rules On Home Loan Benefits
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However, according to the proposed change, on rented properties, the borrower can only claim deduction of up to Rs. 2 lakh per year after adjusting for the rental income. And the amount above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.
Experts say the move will dampen the demand for buying a second property for the purpose of earning rental income. “High net worth individuals used to buy properties on loan and were able to set off the full interest liability against the lettable value of property usually resulting in loss which would substantially bring down tax liability and consequently their borrowing costs. This avenue is now closed and loss above 2 lakh would have to be mandatorily carried forward,” said Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP.
The finance minister in Union Budget 2017-18, however, proposed a change that will attract lower tax on gains from property sale. Mr Jaitley proposed that the holding period of a property for qualifying under long-term gains will get reduced to two years, from three years currently.
As per current tax norms, if a property is sold within three years of buying, the profit from the transaction is treated as short-term capital gain and is taxed according to the slab rate applicable to him/her.
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