THE revised Direct Tax Code proposals should bring cheer to home-buyers and home owners alike. DTC II has done away with the concept of presumptive/notional rent and any house property not let out for any part of the year will be considered to have nil value. However, no deduction for taxes or interest will be allowed for such housing property. The removal of taxation based on presumptive rent is in line with the international practice of taxing real/actual income instead of notional income. As per the earlier draft of DTC, the gross rent from house property was proposed to be determined at higher of contractual rent or presumptive rent. As per the earlier draft of the DTC, the presumptive rent was to be determined at the rate of 6% of the value fixed by the local authority or the cost of construction/acquisition of house property.
Self-occupied house will continue to qualify for interest deduction up to Rs 1,50,000 and the other house at the native place will have to be ignored from tax calculations as the same is not actually let out. Here the total loss for both the properties put together is Rs 150,000, which is the highest among all-three regimes. However, on the flip side, the discussion paper proposes that in case, an individual claims deduction on interest payable on loan taken for purchase/construction of self-occupied house, then his overall limit on deduction on savings would be adjusted accordingly.
Continuation of deduction of Rs 1.5 lakh interest for self occupied property would support tax payers constructing/acquiring the house property for their own accommodation. The earlier draft had no mention of tax incentive for home loan borrowers. However, the draft doesn't mention anything about tax benefits on principal amount paid on housing loans. Similarly, there is no mention of allowing deduction for pre-construction period interest. Hence, some clarity is awaited on the same.
