More Tax Sops On Rental Income Will Push Housing For All Agenda
Indian homebuyers are largely convinced that the sops handed over to them have are not enough because incentives never reach them. The reason: Investors and middlemen in the Indian housing market absorb the benefits given in the budget. What a majority of them forget is that it is the calculated move of the government to incentivise people to own more houses. More houses in the market will free up a large number of dwellings which can be let-out.
How is rental income calculated?
Rental income is determined based on the rent received after deductions like municipal taxes paid in the year, a standard deduction of 30 per cent from the net annual value after deducting the property's municipal taxes and the interest paid to banks on the borrowed capital to buy the property.
Rationalise the income tax structure
Vikas Rajput, who works as a chartered accountant in a Gurgaon company, says: "A person who owns two houses but has not taken any home loan has to forgo a large amount in the form of income tax. For instance, if you own a property and rent it out, the income that you earn will be taxed as income from house property under Section 22 of the Income-Tax Act." The Act gives you a deduction for taxable income from house property. "The entire rental income will not be considered for taxation — only 70 per cent will be considered while the remaining 30 per cent deduction is allowed towards the maintenance of the property," he says.
In order to encourage more people to invest their money in the residential real estate market, the government should introduce a law where less amount of rental income is taxed so that more and more people buy and then lease out their houses.
This is the reason why the interest from the home loan on the second house is not taxable.
More the merrier
The Income Tax Act, 1961, states that if you have two houses and only one is self-occupied and the other is kept vacant, it would deem to have been let-out and the property owner will have to pay tax on it.
The agenda here for the government is that if one owns more than one house, then it should be put on rent so that more and more people have a home.
The move of the central government to give an additional deduction of Rs 50,000 to first-time home buyers on interest on home loan taken for residential property in Union budget 2016 was a step in the right direction and is on lines of the government’s agenda to provide 'Housing for All' but is not enough. In times when property prices are going through the roof, a meagre Rs 2.5 lakh rebate is not enough. To push its agenda, the government should make it tax-free.
In a nutshell, the government should expand the supply of rental housing by giving more concessions on rental income because the 'haves' will be motivated to rent out their properties to the 'have nots'.
Owing to ample availability of houses, it will also put a check on spiralling rents across the country.