The Budget 2017 has brought bad news for people earning rental income.
This is because the government has restricted set off of “loss from house property” from other income streams to Rs 200,000. The balance loss is allowed to be carried forward to next 8 years.
It is pertinent to note that for tax payer having self-occupied house property, the amount of deduction that can be claimed on account of interest is restricted to Rs 200,000 (as per Section 24(b) of the Income Tax Act, 1961). It appears that the proposed change may not impact such category of tax payers. The intention is to correct the anomaly between self-occupied and rented-out property.
Buying a second home to earn rental income might not be an attractive investment after the budget.
Generally, people buy second house to set off the unlimited deduction on account of interest income from their other incomes, including salary, business income and capital gains. But with limit being put on the set off amount people will not be able to adjust their entire income
This will impact the real estate as the investors buying such assets on leverage to benefit from house property losses on account of big difference in rental yields and interest rates will suffer a major blow.