‘No cap on interest deduction works’
No restrictions on interest deduction for second property help drive the realty sector, say experts
Some experts, however, such as Homi Mistry, partner, Deloitte Haskins & Sells LLP, feel that unlimited deduction on a second property should not be stopped entirely as it gives an impetus to the housing sector and encourages investments. “But the government can certainly consider increasing the limit from ₹ 2 lakh to ₹ 3 lakh as part of the standard deduction,” he says.
Section 24 of the ITA is also strangely silent on the place where you have acquired the property. A tax payer can get this benefit (the second property) on his global income even if he has bought the property abroad. It should be clarified in the Budget that this benefit is only for properties bought in India, he says
The practice of claiming the entire interest as deduction from the rent of the second property has its genesis in setting off income generated by an asset against the interest on loan taken to acquire that asset. Following the basic arithmetic, in case the rent from the second house i s l ower t han t he interest outflow, the negative income so generated can be knocked off against other incomes, including salary.
If the government decides to restrict the amount of interest deduction to the extent of rent from the second house this may have a detrimental impact on real estate investments as there are some people who want to take the benefit of this provision and a cap on interest deduction will not allow them to put their money in a second property, adds Vineet Agarwal, partner, KPMG.
A second house is always an investment since one already has a primary house to live in and investments are always driven by comparative returns. A measure to curtail tax benefits in real- estate investments may impair sentiments of individual investors, he adds.