Benefit on second house capped

FM has capped the interest a borrower could deduct on buying a second home to Rs 2 lakh in a FY

The government has provided relief while selling property by bringing down the holding period for long-term capital gains tax. It has pared the benefit provided on buying a second house. The finance minister has capped the interest a borrower could deduct on buying a second home to Rs 2 lakh in a financial year. Earlier, a buyer could deduct the entire interest paid on the home loan.
 
Say, you bought a second property with a home loan, where your interest outgo in the first year is  Rs 10 lakh. Assume you are earning Rs 4 lakh as rent from it. Such buyers were allowed to adjust the difference of  Rs 6 lakh ( Rs 10 lakh interest minus  Rs 4 lakh income) against any head of income. However, from the next financial year onwards, they only get deduction up to  Rs 2 lakh. The remaining amount (Rs 4 lakh in the example above), can be carried forward up to eight financial years and be adjusted later.

 
“This will affect property buyers in the initial years, where the interest on the loan constitutes up to 80-85 per cent,” says Rahul Garg, partner at consultancy, PwC. Usually, between the seventh and ninth year, the interest and principal are equal, and the former starts decreasing thereafter.
 
When selling a property, your tax liability could now be lower. You can now claim long-term capital gains (LTCG) if you sell a house after holding it for two years from the date of completion. Earlier, one could claim LTCG only after a holding period of three years. The rate for LTCG tax usually works out to be lower compared to the short-term rate.