Income Tax Effect on Let out property – Finance Bill 2017

By | February 27, 2017
(Last Updated On: February 27, 2017)

Income Tax Effect on Let out property

What Finance Bill 2017 says about Loss from House Property
As per Finance Bill 2017, the set-off of loss from house property against income from any other source is restricted to R2 lakh per annum. Balance loss, if any, will be carried forward for eight subsequent years to be set off against income from house property. [ Read Set-off of loss from House property restricted w.e.f AY 2018-19 ]

Let’s say, an individual has two house properties, one being self-occupied and the other let out. If he is paying interest on home loan on self-occupied property of R1,50,000 and for let-out property R3,50,000 and he receives a rent of R1,20,000, the amount that can be set off now is R3,80,000. As per the proposed Finance Bill it will be R2,00,000 (See graphic). The balance loss can be carried forward for eight subsequent years.

ParticularsFY 2016-17

AY 2017-18

FY 2017-18 onwards

AY 2018-19 Onwards

A. Income From House Property -1 (Self Occupied)
B. Income From House Property -1 (Let Out) after 30% standard deductionRs  120000Rs  120000
C. Total Income From house Property ( A+B)Rs 120000Rs 120000
D.Less Interest on Hose Loan for Property 1 (Self Occupied)– Rs 150000–  Rs 150000
E.Less Interest on Hose Loan for Property  2  Let Out– Rs 350000– Rs 350000
F. Total Loss from house Property ( C-D-E)Rs 380000Rs 380000
Loss from house Property which can be set off from any other head of Income  ( No limit for FY 2016-17 but for FY 2017-18 Limited to Rs 200000 by Finance Bill 2017)Rs 380000Rs 200000
Balance Loss to be Carried forward and set off in next 8 years only from house PropertyRs 180000

Under the proposed law, a taxpayer may not be able to fully absorb loss in the same year or in the subsequent year if he does not have sufficient rental income. Hence, this move, once it becomes law, will certainly impact those having significant loss from either let-out property or deemed let-out property, which under the current law can be set off completely (without any limit) against other income.

How it impacts Tax Planning of Let Out Property

Though the proposed law may have less impact on individuals who pay lower interest on housing loan, it will definitely discourage individuals who purchase property for investment purposes, as currently, they are able to set off the entire loss arising due to higher interest against other heads of income.

It is not that a taxpayer will have to forego the excess interest (above R2,00,000) completely and forever. He can carry forward the excess loss (which cannot be set off against other heads of income in the current year) for eight subsequent years to be set off only against income from house property for those years.

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