Vacant properties rebate may go

As part of its plan to cut back on tax exemptions, the finance ministry may withdraw the 30 per cent rebate available on the total rental value of unoccupied properties in the forthcoming Union Budget.

At present, if a house owner keeps his property vacant (does not rent it out partially or fully), he can claim a tax rebate equivalent to 30 per cent of the rental value of that property from his annual taxable income.

In effect, if the annual rental value of a three-bedroom house is Rs 3 lakh, the owner of the vacant property can claim a deduction of Rs 90,000 from his annual taxable income.

Official sources say the Ministry of Housing and Poverty Alleviation has recommended the change for the 11th Five-Year Plan period that begins in 2007-08. Such a move will have a two-fold impact.

According to Vinoy Krishna, principal consultant, PricewaterhouseCoopers, it would increase the housing stock in the market, since owners would be encouraged to rent out their properties. Second, greater availability might decrease rental rates.

In fact, there were indications that the government was considering a parallel move to increase the rebate from 30 per cent to 50 per cent for house owners who rented out residential properties, Krishna added.

At present, the annual value of a vacant property can be determined by the estimated market rate in that area or by the actual rental paid for it.