ExpertDabbler

Consider this,

1) If X buys his first house property for say, 25 lakhs. And lets assume he takes 20 lakhs as loan from some bank for a tenure of 20 years. The interest on borrowed capital will be 18000 Rs. per month(app).  Unfortunately, the tax man will only write off a maximum of 1,50,000 as interest paid on borrowings for acquiring a house property. The rest wil be taxable.

Now,

2) If X buys his second house property for say, 35 lakhs. And lets assume he takes 20 lakhs as loan from some bank for a tenure of 20 years. The interest on borrowed capital will be 30,000 Rs. per month(app).  Now, the tax man will write off the entire 30000 x12=3,60,000 as interest paid on borrowings for acquiring the second house. The only catch is some additional amount by way of notional value will be added to the amount chargeable to tax. One of the yardstick is  ‘Annual Value’ as determined by the Municipal Corporation. As people might know, such valuations are ridiculously low. For eg. I may pay a rent of Rs.6000 per month but the annual value will be Rs. 6000 (pa ofcourse) in the corporation.

I think this is a glaring loophole. In this scenario, the person can conveniently occupy the house and declare a notional value of 12000 per annum. All while getting tax deductions for 30k-40k.

What I don’t understand is, why should the tax law be biased in favor of  the relatively well off guy who buys a second house and be more restrictive on someone buying his first property?