Demonetization: Be prepared to Witness Weak Demand for Rented Properties
May 17, 2017 Home Trading Steps
We are already nearing the 50 day deadline to exchange old 500 and 1000 rupee notes, courtesy demonetization and yet the real estate sector in the country is still reeling under the effects of the said move. While market analysts are busy analysing the impact of the currency ban on the said sector, sales in the property business, especially the secondary market have been largely underwhelming.
Property experts are speculating a steady fall in property prices which is bound to change several equations in the realty sector. It is believed that the upcoming months may see demand for rented properties going down with people now more interested in taking advantage of fallen property prices. As a result, people having a second home may find it relatively difficult to rent their properties. Let us discuss the possible scenarios that may come into existence due to this issue in near future:
Demonetization will stabilise property prices:
With the old 500 and 1000 rupee notes now taken out of the system, several real estate deals have come to a grinding halt. Developers are staring at piled up inventory due to the apparent shortage in demand. All these conditions have stabilised the highly volatile real estate prices. Potential home buyers, already boosted by home loan rate cuts are expected to take advantage of this price correction thereby resulting in reduced demand for rented properties.
Income Tax Act on Second home:
As per the Income Tax Act, for a person having two homes, only one home can be treated as self-occupied and will get exempted from Income Tax. The second home will be taxed as per the rules defined in section 23(1) of the I-T Act.
I-T implications on second homes fetching low rentals:
Since demonetization has already weakened the demand for rental homes, chances are the actual rent you receive will not be much more than the fair rent (fair rent is the ceiling limit decided by local authorities for a property) for your property. The annual value of the property is determined by taking into consideration the higher amount of fair rent and the actual rent received.
Tax consultants suggest even if the rental rates fall down, they will be still higher than the municipal rateable value.
What if your second home is vacant:
If your second home remained unrented throughout the year or was rented out only for a few months in a single year, then, the rent received would be less than the fair rent. The owner can file annual income as nil if the second home remained unoccupied throughout the year.
As per the Section 23(1)(c)of the I-T Act if a property remained vacant for whole or any part of a particular year, such that the actual rent received is less than the fair rent, then, the annual value is treated as the actual rent received.
The claim for nil annual value of a second home is stronger if the property was rented out earlier and that it failed to attract tenants due to changing economic conditions. However, strong evidence needs to be shown to the I-T officials suggesting that best efforts were made to rent the property.
Property experts are speculating a steady fall in property prices which is bound to change several equations in the realty sector. It is believed that the upcoming months may see demand for rented properties going down with people now more interested in taking advantage of fallen property prices. As a result, people having a second home may find it relatively difficult to rent their properties. Let us discuss the possible scenarios that may come into existence due to this issue in near future:
Demonetization will stabilise property prices:
With the old 500 and 1000 rupee notes now taken out of the system, several real estate deals have come to a grinding halt. Developers are staring at piled up inventory due to the apparent shortage in demand. All these conditions have stabilised the highly volatile real estate prices. Potential home buyers, already boosted by home loan rate cuts are expected to take advantage of this price correction thereby resulting in reduced demand for rented properties.
Income Tax Act on Second home:
As per the Income Tax Act, for a person having two homes, only one home can be treated as self-occupied and will get exempted from Income Tax. The second home will be taxed as per the rules defined in section 23(1) of the I-T Act.
I-T implications on second homes fetching low rentals:
Since demonetization has already weakened the demand for rental homes, chances are the actual rent you receive will not be much more than the fair rent (fair rent is the ceiling limit decided by local authorities for a property) for your property. The annual value of the property is determined by taking into consideration the higher amount of fair rent and the actual rent received.
Tax consultants suggest even if the rental rates fall down, they will be still higher than the municipal rateable value.
What if your second home is vacant:
If your second home remained unrented throughout the year or was rented out only for a few months in a single year, then, the rent received would be less than the fair rent. The owner can file annual income as nil if the second home remained unoccupied throughout the year.
As per the Section 23(1)(c)of the I-T Act if a property remained vacant for whole or any part of a particular year, such that the actual rent received is less than the fair rent, then, the annual value is treated as the actual rent received.
The claim for nil annual value of a second home is stronger if the property was rented out earlier and that it failed to attract tenants due to changing economic conditions. However, strong evidence needs to be shown to the I-T officials suggesting that best efforts were made to rent the property.
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