What if the second house loses the status of a deemed let out property?
The interim Budget proposes to allow two house properties being considered as self-occupied property. Thus, the deemed rent is no longer considered taxable but, this amendment is likely to have an adverse impact from a taxation point of view.
With the proposed change, the individual can now consider two properties as self-occupied. As such, there will not be any income from house property in the above situation and consequently, there will not be any tax liability.
In Case of Housing Loan
In the same example, let us now assume that there is housing loan on both the properties. The interest payment has been assumed to be INR 300,000 and INR 400,000. Let’s now see impact of proposed changes in the Budget.
Under Existing Provisions
Particulars
Property 1 (Self Occupied)
Property 2 (Deemed Let out)
Net Annual Value (NAV)
NIL
100,000
Less: Standard Deduction
NA
(30,000)
Less: Interest on housing loan
NIL
NIL
Income from house property
NIL
70,000
Loss to be set-off in current year is INR 200,000 against salary/other income. Hence, loss which can be carried forward- INR 330,000 to be set off against future house property income.
Under Proposed Provisions
Particulars
Property 1 (Self Occupied)
Property 2 (Deemed Let out)
Net Annual Value
NIL
100,000
Less: Standard Deduction
NA
(30,000)
Less: Interest on housing loan
(300,000)
(400,000)
Income from house property
(200,000)
(330,000)
Carried forward loss is Nil. Hence, in this case, the individual has a negative tax impact on account of the amendment proposed. As such, the amendment would impact individuals depending on individual circumstances, quantum of interest and rent income.
Particulars
Property 1 (Self Occupied)
Property 2 (Self occupied)
Net annual value
NIL
NIL
Less: Standard Deduction
NA
NA
Less: Interest on housing loan
(300,000)
(400,000)
Income from house property
(200,000)
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