Benefits of Second Housing Loan in Income Tax

If you are planning to apply for a home loan for your second home, you must be aware of the different income tax benefits on a second home loan. Under Section 24 and Section 80C of the Indian Income Tax Act, you can avail of tax benefit on both repayment of the principal and interest amount. However, if you are planning to rent out one of the properties, there can be some differences in the tax benefit rules.

Generally, if you are a first-time home buyer, you are eligible to get tax benefit of up to Rs. 1.5 lakh on the repayment of the principal amount under Section 80C. However, this is not applicable for a second home loan. But you can still get tax benefits on the home loan interest repayment.

The second home loan tax benefit rules vary based on the purpose of your purchase. So, here is how you can claim tax benefit as per your usage of the second home.

 

When you rent out one of the houses

As per the existing tax rules in India, the income you get from rent is a taxable income. You must declare the same under the ‘income from rent’ head while filing your ITR (income tax returns). However, you can claim a deduction for the amount you spend on the maintenance of the property, and the amount you spent on the repairs.

In addition, you can claim a tax deduction on the interest amount of your home loan, and it is capped as per the property’s construction status.

 

When you don’t rent out either of the houses

You may not rent out both your houses. But you must know that in such cases, the government of India does not consider two properties as ‘self-occupied.’ You must claim one house as ‘self-occupied’ and the other as ‘deemed rented out.’

In this case, you must pay tax on the assumed rent you may earn from that particular property. The location of the property plays a huge role in deciding the rent amount and the tax payable. Additionally, you insure the second home and can claim tax benefits on the insurance premium amount you pay under Section 80C of the Indian Income Tax Act.

 

When you rent out both the houses

If you live in your parents’ home or overseas, you can rent out both houses and earn additional income. In such a scenario, you must pay taxes on the income earned from the rent of both properties. However, you can claim a tax benefit on the second home interest payment under Section 24 of the Indian Income Tax Act.

 

Calculating the tax benefit on 2nd home loan

The procedure for calculating tax benefit on a 2nd home loan depends on different factors. And calculating the amount manually can be quite complicated. So, it is best advisable to use the online tax calculator. It is an easy-to-use tool that not only helps to compute the actual tax benefit you can avail instantly but also provides accurate results.

• Log into a reliable home loan tax benefit calculator page

• Enter the financial year for which your home loan tax will be assessed

• Select the appropriate category – male, female or senior citizen

• Enter the per annum earnings in the relevant field

• Enter the principal and the interest amount you have already repaid during a specific financial year in the relevant sections

• Click on the ‘calculate’ button to know the exact amount

 

Procedure to claim income tax benefits on second home loan

If you are not sure how to get tax benefits on second home loan, here are the steps you must follow:

• Firstly, you are the sole owner or co-owner of both properties.

• Calculate the tax benefit on your second home loan beforehand.

• Submit the home loan interest certificate to the employer so that they can adjust the TDS (Tax Deducted at Source) from your salary accordingly. If you fail to do this, you cannot claim any deduction benefit, and the employer will deduct TDS from your salary.

• Provide your home loan sanction letter.

 

Conclusion

Investing in a second home is a great way to build your asset. Also, it is a financially very smart decision as you can enjoy various tax benefits. However, to claim the tax deduction, you must be the owner or the co-owner of the property and use the property correctly to claim tax benefits.