‘No cap on in­ter­est de­duc­tion works’

No re­stric­tions on in­ter­est de­duc­tion for sec­ond prop­erty help drive the re­alty sec­tor, say ex­perts

HT Estates - - FRONT PAGE -

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.

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