For second homes, cap to stay on exemption

Govt says limit set as it was 'virtually misused'

The Rs 2 lakh cap on tax incentives for second homes would stay, the government said on Saturday, noting that the limit was imposed because it was “virtually misused.”

“Government resources are very very limited. The question is, should the government be subsidising first-time home owners who are occupying own house or should the government be subsidising the second acquisition of the property by people who have got surplus money to invest in real-estate?” Revenue Secretary Hasmukh Adhia said in an interaction with India Inc.

In the amendments made to Section 71 of the Income Tax Act, the government proposed to insert a new sub-section, which provided that the maximum loss from house property allowed to be set-off against other heads of income will be restricted to Rs 2 lakh in any financial year.

“If I already have my own house and I buy a new property after taking a bank loan of Rs 1 crore, the interest on it is Rs 10 lakh per annum and I rent it out to somebody who gives out Rs 3 lakh as rent, the remaining Rs 7 lakh you could offset against your salary income or business income," Adhia said.

The government loses one third of that sum on the second home, he said, adding that the losses came to about Rs 3 lakh, besides the Rs 2 lakh incentives it still gave.

“Why should the government bear the cost of second house acquisition?” Adhia said. “We have a lot of people to be given affordable housing... so the revenue loss was huge and people were virtually misusing it.”