The period in-between price range 2019 had many announcements which could at once affect the person taxpayer. One of the measures introduced become the inspiration to an exempt levy of tax on notional or deemed lease from a 2d house property. While making the announcement, Piyush Goyal, in his price range speech, said, “Currently, earnings tax on notional hire is payable if one has a couple of self-occupied residences. Considering the problem of the center elegance having to hold households at two locations due to their activity, kid’s education, care of mother and father and many others. I am offering to exempt levy of profits tax on notional lease on a 2nd self-occupied residence.””
According to the proposal, a 2nd residence property may be treated as ‘Self-occupied property’ if it isn’t always let out. As per contemporary laws, a second house assets mendacity vacant (no longer let loose) or utilized by own family individuals is taken into consideration as deemed to be rented out, and tax has to be paid on notional rent earned from this property. However, there may be no readability among experts at the applicability of this proposal and, therefore, its tax implications. One greater component that needs to be stated is that while extending the benefit of self-occupied belongings to a 2nd house, price range 2019 has also restricted the most quantity of deduction that can be claimed on the hobby paid on housing mortgage.
According to tax specialists, as in step with meantime price range 2019 proposals, from FY 2019-20, the amount of deduction available at the interest paid at the housing mortgage for both the self-occupied homes has been limited to Rs 2 lakh. Previously, people having a 2nd residence may want to claim the deduction on the hobby paid at the housing loan without any economic limit. However, the overall loss from the house assets that might be prompt become constrained to Rs 2 lakh in a financial year. Any unabsorbed loss which could not be claimed in the real monetary year becomes allowed to be carried forward for eight assessment years for set-off with destiny income.
Post Budget 2019 proposals, as both the homes could be treated as self-occupied. Therefore, any unabsorbed loss will not be allowed to be carried forward. The query now arises that whether or not the second one residence of a taxpayer may be mandatorily treated as self-occupied or can nonetheless be treated as deemed to be let loose depending on weather conditions for being termed as ‘self-occupied as in keeping with segment 23(2) are met or no longer. Chartered accountants have differing evaluations in this regard.
Chartered Accountant Naveen Wadhwa, DGM, Taxmann.Com, says, “A taxpayer’s 2nd residence can nonetheless be considered as deemed to be let loose if it does no longer meet any of the conditions distinct below Section 23(2) of the Income Tax Act. As in step with section 23(2), the price of the residence will be taken as nil (i.E., the residence is treated as self-occupied for tax functions) if the owner utilizes the said residence for his very own residential cause, or it could not be occupied using the proprietor because of his employment, commercial enterprise or career at some other vicinity and he has to reside at such different vicinity in a rented house/residence no longer owned by him. If any of the circumstances are happy via the character, then, in that case, the second residence could be handled as self-occupied property. However, this will additionally be interpreted as if the taxpayer has two houses. If no situation is happy as referred to in Section 23(2) in admire of the second house, then the second one residence will be taken into consideration as deemed to allow-out assets.”
Corroborating his perspectives, Shalini Jain, Tax Partner, People Advisory Services, EY India, says, “The Interim Budget 2019 seeks to offer comfort to the category of taxpayers who are required to pay tax on 2d residence belongings which are both used my dad and mom to live in or mendacity vacant. Those taxpayers will not pay tax on notional hire on the second property if it qualifies as self-occupied house assets per Section 23(2) of the Income-tax Act, 1961. As in step with the provisions of this section, house assets may be considered as self-occupied most effective if the house property is occupied with the aid of the taxpayer for his house or it couldn’t be occupied with the aid of the taxpayer due to his employment, business or career in every other place. He needed to are living in that other location on a property that is not owned by way of him. Hence, if either of the condition isn’t pleased for belonging, which isn’t always rented out, such residence belongings could not be considered as self-occupied – it might be considered as deemed to be set free. However, if both of the two conditions are glad, the taxpayer will mandatorily be required to reveal each of the houses as self-occupied and would not have a choice to don’t forget either of the homes as deemed to be let out.”
Jain besides explains this with an instance. “Suppose Mr. A owns a residence in Delhi that’s occupied by using his circle of relatives. Mr. A operates in Mumbai, living in every other residence, which is likewise owned via him. At gift, Mr. A can claim the simplest one house assets as self-occupied, and notional hire is taxable for the second house property. Now, as per the proposed provisions, Mr. A could be able to keep in mind each of the homes as self-occupied. However, the proposed provisions shall be useful if homes are acquired from very own sources, and it is confined or no expenditure resulting from interest on housing mortgage or if the once a year marketplace rent (the price at which assets is predicted to be let loose) is higher than the amount of general interest expenditure. This is because the interest deduction hassle of Rs 2 lakh, which currently applies to the simplest one self-occupied house property, will henceforth apply to both self-occupied properties together.”
I am taking a special view, Abhishek Soni, CEO, Tax2win.In, a tax-submitting company says, “Currently, if any assessee owns a couple of residences, then the provisions of notional hire practice even on the second vacant house or house occupied via, say, dad and mom. As in line with the proposals of Interim Budget 2019, the provisions of the notional lease on the second house will now not be applicable. However, going via the wordings used in Section 23 (2) of the Income Tax Act, 1961, the second residence also need to be used by the assessee for his personal residence. Now, the question arises whether each house should be used for personal residence with a purpose to declare the advantage of change or maybe person using one residence for own residence and any other house lying vacant house may be dealt with as self-occupied. As this is the grey region that can result in litigations in the future, we are awaiting an explanation of this problem by using the CBDT. However, if person wishes to keep away from litigation with the income tax department, they ought to deal with 2d residence as self-occupied belongings.”
Practicing Accountant Sachin Vasudeva says, “As in keeping with the finances proposals, it’s miles clear that people do now not have any desire in treating their second residence assets as deemed to set free. From FY 2019-20, the second house assets may be handled as self-occupied belongings, most effective if deception is vacant. No tax will be payable on the idea of the notional rent on such house if both that house is not let out i.E. Lying vacant all through the financial 12 months or both occupied by your family let say your parents.”
Chetan Chandak, Head of Tax Research, H&R Block India, says, “From the price range proposals, it is not clear whether or not a person can be able to claim the second house as deemed to allow-out if the two situations indexed in phase 23(2) are not glad. Individuals need to remember that if the second house is dealt with as self-occupied property, then the interest deduction available on housing mortgage under phase 24 for both the houses might be constrained to the aggregate of Rs 2 lakh. And in the absence of sheer readability as to whether or not you will declare the opposite house as deemed to be set free, the tax officer may try to restrict the hobby deduction underneath segment 24 to Rs 2 lakh for each home. This will reduce the possible tax gain inside the destiny from the set-off of carried forward losses. Put together.”