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Latest Income Tax Rules That Come Into Effect On Home Loan - Tollybeats

Latest Income Tax Rules That Come Into Effect On Home Loan

Updated | April 18, 2017 19:54 IST

The government of India has changed tax rules on rented properties from April. With the changed income tax rules, there is a hike in tax outgo for those who have taken a home loan on a rented out property. The amount that could set out on home loans for a rented property has been reduced.  In case of rented property, how can you calculate the loss from house property?

The loss from house property is the interest paid on home loan minus rental income. This was allowed to be adjusted from income without any limit, which helped notably to reduce tax liability. Whatever the limit that can set out against the loss from rented house property has been restricted to 2 lakh per annum and it was applied from 1st April 2017(the assessment year 2018-19).

The interest paid above Rs. 2 lakh on rented properties can be carried forward for eight assessment years. Because higher home loan interest component has paid in initial years. So the borrower may not be able to either regulate or adjust the interest paid as the deduction even in ensuing years.

E.g. If Mr. X’ interest outgo on a second property is five lakhs in a specific year. Let us assume that Mr. X is earning 1.5 lakh as a rent from the property, annually. Such buyers, based on the present rules, are allowed to adjust the variance of 3.5 lakh( 5 lakh minus 1.5). From the next financial year, they will be allowed deduction of just 2 lakh. The remaining amount of 1.5 lakh(3.5 minus 2lakh) can be carry forward to eight financial years and be adjust later.

Based on the changed income tax rules, those who has more than one property can consider any one of them as own property and the remaining properties have to be assumed to be rented. Income tax has to be paid on notional rent.

Another tax rule pertaining to the properties is likely to be changed in April, which will help bring down tax liability from the property sale. Currently, three years for holding period of a property for qualifying under long-term gains and it will reduce to two years.   Based on present tax norms, if a property is sold within three years of buying, whatever the profit from the transaction is treated as short term capital gain and he/ she is taxed according to the applicable slab rate.  So reducing the time period to two years will apparently bring down tax liability.

The transaction will be able to qualify for long-term capital gains after two years and thus lower taxes. Post indexation, the profit is taxed at 20 per under the long-term capital gains on immovable properties. Under indexation, inflation during the holding period is taken into account and thus the purchase is adjusted, reducing the tax burden on the property seller. The seller will get other benefits too under the long-term capital gains tax. And the tax liability goes down significantly if the gains are invested in some select government investment schemes.