Home » Income Tax » Articles » Curb tax benefit on home loan interest by Mr. FM in Budget 2017

home loanIn budget 2017 FM Mr Arun Jaitley has significantly restricted tax benefit on interest paid on home loan in case of properties that are rented out or deemed let out. Mr Jaitley has restricted the loss on house property to of rupees 2 lakh only.. Currently there is no limit on the amount of this loss that can be set off against other head of the income.

Let’s understand that impact of tax benefit on home loan interest for rented property.

At present the loss from house property (in case of rented property) which is the interest paid on home loan was allowed to be adjusted from remaining income without any limit.

It would reduce tax liability to a great extent. Several taxpayers considered investment in house property as a means of tax planning while creating an asset with a long term view.

After the budget 2017 this limit bill be restricted to set off for loss from rented house property to rupees 2 lakh per annum this is a very big blow to the taxpayer who has rented their property.

This action is aimed at bringing parity between the tax benefit allowed on self occupied property with properties that is rented out in terms of the loss on house property. Those with self occupied property are currently allowed to claim interest paid up to  Rs. 2 Lakh on home loan as a deduction from other heads of income such a salary income or income from other sources therefore the deductions can claim on interest paid on home loan is already in Limited to Rs. 2  lakh

An example is shown in the table below:

An individual receiving a rental income of Rs 35,000 per month and paying a housing loan interest of Rs 10 lakh per annum would have to pay tax on additional income of Rs 5.13 lakh. Therefore, such an individual in the 30% tax bracket would have to shell out additional tax of Rs 1.59 lakh assuming the person’s taxable income is below Rs 50 lakh,

HOUSE PROPERTY
SELF OCCUPIED CURRENT POST BUDGET
DETAILS AMOUNT TOTAL DEDUCTION LOSS FROM HP ELIGIBLE TO SET OFF TOTAL DEDUCTION LOSS FROM HP ELIGIBLE TO SET OFF
INCOME NIL 0 0 0 0
MUNICIPAL TAXES PAID 10000 0 0 10000 0
STANDARD DEDUCTION @30% 0 0 0 0 0
INTEREST- U/S 24 1000000 200000 (200000) 200000 (200000)
LET OUT HP @ Rs.35000/- pm CURRENT POST BUDGET
DETAILS AMOUNT TOTAL DEDUCTION LOSS FROM HP ELIGIBLE TO SET OFF TOTAL DEDUCTION LOSS FROM HP ELIGIBLE TO SET OFF
INCOME 420000 0 0 420000 0
MUNICIPAL TAXES PAID 10000 0 0 10000 0
STANDARD DEDUCTION @30% 123000 0 0 123000 0
INTEREST- U/S 24 1000000 1000000 (713000) 1000000 (200000)

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