Budget 2017: 5 reasons why your second home won’t save much tax

One will not be able to avoid paying taxes by owning more houses. This budget has also disappointed the high-net worth people who have already invested in real estate as the interest payments would keep on increasing every year.

The Budget 2017 has somehow discouraged people as they will think twice before investing in housing sector. A number of people buy their second home for rental income but the benefit that they get after buying the second house has been taken away from them.

Here are 5 reasons why your second house is not going to save much of your tax anymore:

## Tax breaks on interest paid on rented homes have been capped to ₹ 2 lakh per year. Until Wednesday, the entire payment of interest on home loan taken to buy a house for investment was allowed to be kept separate from the gross income.

## One will not be able to avoid paying taxes by owning more houses.

## Currently, the interest cost of a property is around 9% of capital value and rental income is at 2%. As a result the investor gets a deduction of almost 7% of capital value from the taxable income. If the investor falls in 30% tax bracket, the saving is over 2% of capital value each year. But these are going to change after the budget.

## This budget has also disappointed the high-net worth people who have already invested in real estate as the interest payments would keep on increasing every year.

## However, holding period for a property has been reduced from three years to two years now. The profit will be taxed at 20% after indexation if one sells the property after two years. So the indexation will note the inflation during the holding period and accordingly adjusts the purchase price. This will somewhat reduce the burden of tax of the seller.