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Budget 2017: Tax benefit reduced significantly on rented property

Teena Jain Kaushal     February 1, 2017

The Budget 2017 has brought bad news for people earning rental income. This is because the government has restricted set off of "loss from house property" from other income streams to Rs 200,000. The balance loss is allowed to be carried forward to next 8 years.

Poorva Prakash, Senior Director at Deloitte Haskins and Sells LLP, says, "This could adversely impact the investor who invest in house property primarily for earning rental income. Due to this proposed change there is a deferred tax benefit. Also, the tax payer may not be able to fully absorb loss in the same year or in the subsequent year in case they don't have sufficient house property rental income."

It is pertinent to note that for tax payer having self occupied house property, the amount of deduction that can be claimed on account of interest is restricted to Rs 200,000 (as per Section 24(b) of the Income Tax Act, 1961). It appears that the proposed change may not impact such category of tax payers. The intention is to correct the anomaly between self occupied and rented-out property.


Experts say buying a second home to earn rental income might not be an attractive investment after the budget. Generally, people buy second house to set off the unlimited deduction on account of interest income from their other incomes, including salary, business income and capital gains. But with limit being put on the set off amount people will not be able to adjust their entire income

Amit Maheshwari, Partner at Ashok Maheshwary & Associates LLP, says, "This will impact the real estate as the investors buying such assets on leverage to benefit from house property losses on account of big difference in rental yields and interest rates will suffer a major blow. The capping is too low in the present scenario. This has been brought to plug this tax planning technique and discourage purchasing of properties for investment purposes."

In addition to interest income you can claim a deduction of R1.5 lakh for principal repayments under Section 80C.


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