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