Rent-Out Properties To Increase Tax Liability

It is a very common practice to buy a property on loan for investment purpose and make income on rent-out property. But those following this practice, we have a bad news for you. Earlier, people used to have the advantage of setting off their entire loss, which was done by showing it under the head “income from house property” against other income heads. But now according to the Budget 2017, this privilege will have to be restricted to 2 Lakhs. If the loss is more than 2 lakhs it can be carried forward for the next eight years.

People who own one house
People who own only one residential property which they have self-occupied will not be impacted by this change in budget as it will not affect their tax liability. According to the income tax laws till now, if people rent out the only one residential property which they have , they were given the right to set off the losses incurred from this property against other income sources. But after the amendment in the Budget, these people will be able to write off such losses with a restriction of 2 lakhs from the next financial year.

People who own more than one house
When people own more than one house or property, it is assumed that they live in one of those and the rest are let out, even if they happen to be vacant. For calculating the income from house property, the annual rent from all the properties had to be added and then all the expenses were to be deducted. If the result is a negative amount which is loss, this complete was written off against income from other sources. But now this amendment will limit these losses to 2 lakhs which will ultimately increase the tax liability.

If we look at the market conditions which are prevailing, this restriction on writing off losses will affect the real estate investment in a negative way.