Having second property and claiming unlimited interest setoff? You cannot claim after Budget 2017

The Budget 2017 had made a lot of changes in the income tax provision whether it is the changes made in the slab rates, TDS provisions, changes in penalty and rate of surcharge etc. One of the changes I am going to discuss in this article will changes made in the house property provisions.

Under existing provision till 2016 Income from house property the assessee is given option to claim deduction under 24 which are

Deduction u/s 24(a): Where assessee is given compulsory deduction of 30% of the gross annual value. It is standard deduction available to each assessee. And other one is deduction u/s 24(b): where assessee can claim deduction for the payment of interest on housing loan. The deduction u/s 24(b) is limited is in case the house property is self occupied and there is no limit on the amount of interest on housing loan in case of house property is let out.

In case of house property loss the assessee can set off the loss from any other head of income like Salary, business or Income from other sources except income from presumptive income, income from capital gains. And the same loss would be set off in the same assessing year. Under this provision in case of excess loss the assessee could set off the balance in the next year and he/ she can carry forward the same for next 8 years. Another advantage was that the provision can be claimed even if the return is filed lately or after due date.

But the current budget 2017 has made some changes in this provision which is explained below with example:

Restriction on set-off of House Property loss– Section 71

As we discussed that Section 71 deals with set-off of loss from one head of income against other head finance bill 2017 provides that under sub-section (3A) of section that set-off of loss under the head ‘Income from House Property’ against any head will be restricted to Rs. 2 lakh. This has an impact on cases where, on account of high interest on borrowings. There are no changes made under provision of section 71B, i.e. the unabsorbed loss is allowed to carry forward for set-off in subsequent 8 years immediately succeeding the assessment year (AY) for which the loss was first computed against the income from house property in accordance with the existing provisions of the Act. The assessee can set off the loss from house property with other head of income but it is restricted to Rs. 2 lakh and the balance can be carried forward to next year and can be claimed for 8 years. The above amendments can be understood better with the following example.

Example - Computation of Total Income and Tax Liability

Heads of income

As per Old Provision

As per New Provision

Amount

Amount

Income from Salary

25,00,000

25,00,000

Income From House Property-

Annual Value

Less:Municipal Taxes

Less : 30% Dedcution

Less : Interest on Hosuing Loan

Loss on House Property to be set off against other heads.

 

                                       3,00,000

-

(90,000)

(12,00,000)

(9,90,000)

                                      3,00,000

-

(90,000)

(12,00,000)

2,00,000

Gross Taxable  Income

15,10,000

23,00,000

Tax liability

2,83,250

5,30,450

Additional tax liability

2,47,200

Loss on House Property to be carried forward to succeeding  8 years

Not available

(7,90,000)

 

From the above illustration we learn that an assessee who is having a salary income of Rs. 25,00,000 and has a house property income of Rs.3,00,000 on which he is paying an interest of Rs. 12,00,000 and availing standard deduction of Rs.30,000 i.e. incurring  a loss of Rs. 9,90,000 can set off the whole loss against the other heads of income like salary, business income etc  and compute the total income of Rs.15,10,000 and get tax calculated on it. But as per the Budget 2017 the same assessee with the same incomes as above can only claim set off of Rs.2,00,000 from house property loss against the other heads of income and carry forward the remaining loss of Rs. 7,90,000 to next succeeding 8 years and compute the total income of Rs.23,00,000 and get tax calculated on it.

The tax liability of the assessee as per the old provisions is Rs.2,83,250 whereas the tax liability as per new provisions is Rs.5,30,450 increasing the tax liability by Rs.2,47,200 and carry forwarding the remaining loss of Rs.7,90,000 to succeeding 8 years.

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article author PAUL CHANDRA KUMAR
Posted On:  1 year ago

An individual who has invested a huge sum in a Flat by borrowing home loan (as the post tax effective rate may be 7% at 30% slab) with long term tax planning in mind will get betrayed. He cannot reverse this now. This should be made applicable for future cases. Otherwise reliability of tax concessions given by the Govt. would get lost as it may at any time withdraw especially when huge amounts get invested believing that it will not be reversed. Even in case of EPF, in case of employees already invested and having huge corpus, suddenly if settlement is going to be taxed, will it not amount to unethical practice by the Govt. - no guarantee that it would not happen. Ethically all these should be prospective so that the individual can take a calculated risk.


article author

CA Chirag Chauhan

Tax Expert
Chartered Accountant, CA Chauhan



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    I hope by reading this article you got enlighten on ,Having second property and claiming unlimited interest setoff? You cannot claim after Budget 2017Tax treatment on transfer of asset by holding company to indian subsidiary (Section 47(iv) ), Income tax provisions for capital gain for transfer of asset by holding company to subsidiary company ?, Bare act portion of section 47(iv) of income tax act,1961, further to mention before taken any financial decision based on this content it is prefered to take an expert opinion as matter can be subjective.