Tax Benefits of Availing of a Second Home Loan in India

Buying a home is a dream for many and availing/choosing the right home loan option can help to finance a home purchase. Home loans help borrowers not only to get finance for their new homes but also avail of home loan tax benefits, which is a big plus for most salaried people. Most home loan borrowers are aware of the income tax benefits on their loans, but many buyers are unaware of the tax benefits on such loans if taken for the second time for properties bought for investment or renting-out purposes.

Purchasing a home has always been considered a good investment option, and the tax benefits on home loan were an added benefit for a buyer. However, now an individual can claim tax benefits on a second home loan too provided they have negotiated for the best home loan interest rate.

Before the financial year 2019-20, an individual owning two homes could claim income tax benefits for the house that was occupied by him. For the second house or property, the individual was liable to pay taxes as per notional rent, which is the rent amount received from the property. Let us now see how the taxation system on the purchase of second homes works.

How Taxation of Second Home Works?

Individuals planning to purchase a second house property must have knowledge and understanding of how taxation works on that. Before understanding the taxability of immovable property, one must know that there are two types of housing properties:  

  • Self-occupied property
  • Let-out property

The former is a residential property and is treated as self-occupied. However, in the case of the latter, since it is considered a rented or let-out property, the income generated through it is subjected to tax under the ‘Income from house property head.’

A notional rent value is regarded as taxable even if you do not rent out that property. Sometimes, people rent out both these housing properties and start living in different houses. In such a scenario, the total income you receive as rent (from both houses) is taxable. Tax deductions u/s 80C can be claimed for both ‘self-occupied’ and ‘let-out’ properties, so be informed and avail the benefits. 

Tax Benefits Available on Second Home Loan 

Are you aware of the tax deductions available u/s 80C of the Income Tax Act? Do some research as it will help you understand how to get tax benefits on a second home loan better. As per the mentioned section in the above act, one can claim a deduction of up to Rs.1.5 lakh on principal repayment. Income tax benefits on a second home loan are available up to this limit only. Such tax benefits are also applicable to other investments, PPF, etc. 

Other Additional Tax Deductions Available on Second Home Loans

If you own two self-occupied properties, one of these two houses owned by you will be considered a ‘Deemed Let-out Property’ or DLOP. Tax rebates can be earned on income got from these rented properties which are taxable. A tax rebate of 30% can be claimed for maintenance and general upkeeps by the owner of that ‘let-out property’ 

Under Section 24 of the Income Tax Act, one can avail of income tax benefit on interest payment of the second home loan. Tax deduction of up to Rs.2 lakhs is available for taxpayers for second home loans. The second home is not considered let out/rented if it is vacant. However, the deduction on the loan interest payment you are claiming for both these house properties cannot go beyond Rs.2 lakhs.  

Procedure to Claim Home Loan Tax Benefits

Claiming tax benefits for a home loan is easy and one just must keep in mind that the first and second home loans should be in their name. In case of a joint loan application, one must make sure that you are a co-owner or owner of both homes

A home loan calculator can help you calculate your EMI and in return, help you understand the tax benefit on a second home loan in advance to save time and unnecessary hassles in the future. 

Submit your home loan interest certificate to your employer to adjust your tax deducted at source calculation, accordingly. Failing to do so will result in a continuation of regular TDS deduction from your salary without any benefits. You may also be required to submit your loan sanction letter as well.

Final Words

A house in your hometown, a holiday home, or just buying another house for extra income by renting out your property can be some of the many reasons for buying a second home for most people. But, buying a second home should not be a problem anymore due to the availability of tax benefits on a second home loan today which makes the purchase much more affordable. However, make sure you are aware of all the conditions associated with it to make use of the tax benefits of availing second home loan in India. You also have the option of a home loan balance transfer in case some other lender is offering it to you at a better rate and service. So, what are you waiting for? Buy a second home and avail the tax benefits which will make your investment worth the effort and help you strengthen your financial standing in the long run.

Also Read: Home Loan Options for First-Time Buyers

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