In a move that is likely to hurt investor-led demand in the real estate sector, the finance minister in the Budget 2017-18 tweaked the provision that significantly restricts the tax benefit a home-owner can claim against the interest outgo on a property put on rent.
While the current provisions allow a home owner to claim full deduction on the interest paid in case the property has been let-out, the finance minister proposed to limit the deduction to Rs 2 lakh in line with what the homeowner can claim in case of a self-occupied property.
According to the Annexure to the Budget speech 2017-18, “In order to address the existing anomaly of interest deduction in respect of let out property vis-à-vis self-occupied property, it is proposed to restrict set off of loss from house property against income under any other head during the current year up to Rs two lakhs. The loss not so set off would be allowed to be carried forward for set off against house property income for eight assessment years.”
This essentially means that for a property put on rent, an individual can now claim deduction on only up to Rs 2 lakh as against on the full interest component of home loan in a year. Illustratively, if the annual interest component in the EMI is Rs 5 lakh, the home-owner could earlier claim deduction on full Rs 5 lakh on such property, but now can only claim up to Rs 2 lakh in a year (carry forward allowed for 8 years).
Now the government has removed the differentiation and the deduction benefit stands capped at Rs 2 lakh both in case of a self occupied property or a property put on rent.
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