BUD­GET 2015 PLUG THE LOOP­HOLE

The gov­ern­ment should give more in­cen­tives to first-time home­buy­ers and stop limit-free de­duc­tion for sec­ond prop­er­ties

HT Estates - - FRONT PAGE - Van­dana Ram­nani

Keep­ing Bud­get 2015 in mind, tax ex­perts are of the opin­ion that in­ter­est de­duc­tion for first-time home­buy­ers should be en­hanced and the limit-free de­duc­tion on a sec­ond home pur­chase should be stopped to bring in much-needed rev­enues for in­fra­struc­ture devel­op­ment and cur­tail the inflow of black money in mul­ti­ple prop­er­ties.

To achieve the gov­ern­ment’s tar­get of hous­ing for all by 2022, the fo­cus should be on en­sur­ing that first-time home­buy­ers should be given max­i­mum in­cen­tives to en­cour­age them to in­vest. Un­der Sec­tion 24B of the In­come Tax Act, the max­i­mum de­duc­tion al­lowed is ₹ 2 lakh. This limit was raised from ₹ 1.5 lakh in last year’s Bud­get. In­ter­est­ingly, there is no cap on the in­ter­est limit for a sec­ond prop­erty, which en­cour­ages peo­ple to make a sec­ond pur­chase. Many of them then claim losses on va­cant prop­erty. This hap­pens more of­ten if the rent they re­ceive for the prop­erty is lesser than the in­ter­est they claim to pay for such prop­er­ties.

Ac­cord­ing to Sonu Iyer, part­ner and na­tional leader, Hu­man Cap­i­tal Ser­vices, EY (Ernst and Young), a va­cant sec­ond house is gen­er­ally deemed as rented out with the rent at­tract­ing tax. How­ever, in most cases the in­ter­est de­duc­tion amount on the prop­erty is higher than the no­tional rent, which the prop­erty owner usu­ally shows as loss – which is an un­due ben­e­fit, say tax ex­perts. “One of the pro­pos­als that the gov­ern­ment should con­sider in Bud­get 2015 is not to tax a prop­erty on a deemed ba­sis. This will not only pre­vent claim for loss on va­cant prop­erty, it will also bring in ad­di­tional rev­enues,” says Iyer.

Also, in case of pre-con­struc­tion in­ter­est, a per­son is al­lowed to avail of the in­ter­est de­duc­tion ben­e­fit only af­ter pos­ses­sion and that too on amor­tised ba­sis over five years sub­ject to over­all cap of ₹ 2 lakh, which in­cludes in­ter­est payable for the rel­e­vant tax year. For in­stance, if pre-con­struc­tion in­ter­est is ₹ 10 lakh, which means amor­tised in­ter­est of ₹ 2 lakh over five years and in­ter­est payable in first year af­ter pos­ses­sion is ₹ 1 lakh, you can claim de­duc­tion only for ₹ 2 lakh and not for ₹ 3 lakh

This is un­fair as in most cases prop­erty pos­ses­sion is de­layed. “Tax­a­tion laws should treat pre-con­struc­tion loan in­ter­est as a sep­a­rate item of amor­tised de­duc­tion out­side the cap of ₹ 2 lakh. Don’t cheat the cus­tomer of his right to de­duc­tion. In most cases, projects are de­layed, and the cus­tomer is not able to avail of en­tire pre-con­struc­tion in­ter­est de­duc­tion,” she adds.

In many cases peo­ple buy two prop­er­ties, both for sel­f­use. One is at the place where they work and the other is in their home towns as they want to stay con­nected to their roots. At present, one can only claim one prop­erty as self-oc­cu­pied, el­i­gi­ble for nil rental value. The gov­ern­ment can pro­pose that the two prop­er­ties be treated as self-oc­cu­pied, says Iyer.

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