What tax benefits will people having 2 homes enjoy after the announcement of Budget 2019?

By : 360 Realtors

11 March, 2019

The interim Budget announced in 2019 proposed that people having two homes will enjoy certain tax benefits. The second home will be considered to be self-occupied, and therefore, the homeowners need not pay any notional rent on it. This provision is likely to be applicable from the financial year 2019-2020 after the Bill is passed by the Parliament.

 As per the present norms, if you own more than one property, the government will consider any one of them, as chosen by the owner as self-occupied. The tax has to be paid accordingly and the second home will be considered to be let out, even if you do not generate any revenue from the same. You will have to pay a tax as notional rent on the second property.

According to the provisions of the Income Tax Act, one can claim interest on housing loan as a deduction, when the taxable income is computed. For self-occupied residential properties, this deduction is limited to INR 2 lakhs. Besides, the taxation is subjected to underlying conditions and no upper limit on the interest that one can claim as deduction exists for a property that has been let out.

In case a property is let out, the net value of the house is calculated by taking the gross annual value under consideration, deducting the municipal taxes that have been paid during the year. Another margin of standard 30% is allowed on the net value, along with the interest deduction on housing loan. As per the interim Budget, certain amendments have been made in the taxation norms. The proposal states that from the Financial Year 2019, both the residential properties will be considered to be self-occupied. The second home will not be considered as a let-out property and therefore, the notional income will not be triggered in these cases. The interest on the home loans of both the self-occupied properties can be used as deduction and the upper cap lies at INR 2 lakhs.

The amendments made in the taxation norms will benefit the homeowners. In the past, people had to pay taxes for two properties, even if they did not rent out one of these. As per the amendments made in Section 24 of the Income-tax Act, 1961, the interest deduction in both the properties will be restricted to INR 2 lakhs as an aggregate. In India, the health of the real estate industry has been improving in recent months. This brings a great opportunity for real estate investors to make intelligent investments. As the prices of properties are likely to rise in the coming months, people can buy two homes and rent out one of these. They can save tax on the income generated as rent from these properties.