House property income need more tax exemption. In Budget 2015 there was a marginal hike. However, the hike is not adequate.
As we move closer to the Union Budget 2016 announcement, the expectations for a tax friendly Budget, soar.
Through this article, we attempt to bring to you a list of expectations from individuals earning income (or losses) from their house properties as well as from those receiving incomes from residual sources.
1. Enhance the deduction for interest on housing loans – In Budget 2014, the Finance Minister (FM), Arun Jaitley marginally raised the deduction limit in respect
of interest on housing loan for self-occupied house to INR200,000 per year from INR 150,000 per year. As this limit was revised after almost 13 years and in view of the astronomical property prices (especially in metro cities), the proposition to further enhance this limit to at least INR250, 000 p.a. does merit a consideration.
2. Time limit for completion of construction – It is important to note that the above mentioned deduction is restricted to INR 30,000 per year if the property is
an under construction property and the construction has not been completed within three years from the end of the Financial Year (FY) in which the amount was borrowed for acquiring such a property. It is unfortunate that many projects in this sector get delayed for various reasons that are beyond the control of the home buyer.
Hence, restricting the deduction for interest on account of delay of completion of construction for reasons beyond the control of the home buyer causes undue hardship. Therefore the FM could consider enhancing this time limit to 5 years. Alternatively, it may be worthwhile to impose the restriction only in cases where the delay is caused on account of the home buyer.
3. Deduction of interest on housing loan pertaining to pre-construction period – currently, interest paid on a home loan during the pre-construction period is allowed as a deduction in five equal installments beginning from the FY in which construction is completed. Further, this deduction is submerged within the overall limit for claim of interest on self-occupied property of INR 200,000 per year. If such pre-construction period interest is allowed as a deduction in the FY of paying such interest itself (even if the construction is on-going), there will be a considerable easing of the monetary burden for small first time home buyers.
4. Principal repayment of housing loan – Currently, repayment of principal component of housing loan is covered as a deduction under Section 80C of the Income Tax Act, 1961 (the Act) which has a cap of INR 150,000 per year. However, this Section is wide-ranging and includes, inter-alia, commonly made investments/contributions such as life insurance premium, public provident fund, employee’s provident fund, five year term eligible deposits and tax saving mutual funds which are made by the public at large. The government may look at carving out a separate deduction for principal re-payment of housing loan, to leave behind a higher disposable income in the hands of the borrowers of home loans and encourage investment in the real estate sector. This will also result in people investing more in life insurance policies and other government provided schemes which are listed under Section 80C of the Act.
5. Enhance the deduction for interest income – Finance Act, 2012 introduced a deduction of up to INR 10,000 in respect of interest income from bank accounts not being in the nature of time deposits. The FM may consider revising this limit to at least INR 20,000 as income and savings have also increased in the past 4 years. To encourage higher savings, it may be worthwhile to extend this deduction to interest income from time deposits as well.
6. Reduction in Tax Deducted at Source (TDS) rates on interest and commission incomes– As suggested by the Easwar Committee, it would be a rational and welcome move to reduce the TDS rates on interest and commission incomes for individuals and Hindu Undivided Families (HUF) to 5 per cent as against the present 10 per cent.
7. Income of minor child – Income earned by minors is included in the income of that parent whose income is greater, unless the income is earned by the minor by
virtue of his/her manual work, skills, etc. This is subject to an exemption of minor’s income of up to INR 1,500 per child per year, to the parent in whose hands the income is so included. This limit introduced in 1992 is inadequate in the present time and could be increased to at least INR 15,000 per year.
8. Family pension exemption – The pension payable by the employer to a person belonging to the family of a deceased employee is taxable as ’income from other sources’ in the hands of the receiver (i.e. nominee). A deduction of up to INR 15,000 or one-third of the amount received, whichever is less is currently available to the said receiver. This limit was set in 1997 and hence may be considered to be revised to at least INR 50,000.
Like each year, the common man expects the Union Budget 2016 to leave behind more disposable income in his/her hands. The FM has the task of balancing the rising expectations and the fiscal deficit of the country, in the Union Budget 2016.
We are now at an interesting juncture where one has to sit back and see how the FM manages these divergent expectations.
Author is Partner and Head, Tax - Global Mobility Services, KPMG in India
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First Published on Feb 23, 2016 06:02 pm