Tax Benefits on Second Home Loan

If you are planning to apply for a home loan to purchase a second home, you must be aware of the tax provisions. Read on to know more about it.For many Indians, buying a new home is an important milestone, and buying a second home is an even bigger achievement. Many people invest in more than one house. And, most second home owners have one concern - can they get tax benefits on home loan?Let us understand more about the tax treatment of a second home loan with an example.Let us assume Mr. Gupta, a 40-year-old businessperson owns one house in Mumbai for which he is paying the EMIs (Equated Monthly Instalments). Now, for better business opportunities he plans to move to Cochin. So, Mr. Gupta lets his home in Mumbai on rent to cover the EMI. And, he decides to buy a new home in Cochin, instead of staying on rent.Now, is Mr. Gupta eligible for availing a second home loan? Can he get a second home tax benefit?YES, Mr. Gupta can take a second home loan and claim tax benefit on it. Let us see how:

The home loan EMI consists of two components – principal amount and interest. The tax benefit on repayment of the principal amount is covered under Section 80C of the IT Act. And, the maximum tax deduction you can get in a financial year is limited to Rs. 1.5 lakhs. This is inclusive of the repayment of the principal amount on second home loan and other investments such as PPF, ELSS, etc.Also, it does not matter if the second home is self-occupied or rented, you can get the tax benefit. So, to sum up the maximum tax benefit you can on principal repayment of first home loan and second home loan is Rs. 1.5 lakhs.

The tax benefit on interest repayment of the home loan is available under Section 24. If you own only one home, the maximum deduction you can claim in a financial year is Rs. 2 lakhs. And, if you have let out the property, before 2019, there was no upper limit on claiming the interest as deduction.However, since Budget 2019, you can consider the second house as self-occupied. So, even if your second home is vacant, for tax purposes, it is considered as rented out. So, let us look at the tax benefits available under two different conditions: Condition 1 – The first home is self-occupied and the second home is vacantAs per the Budget 2019 provision, the second home cannot be deemed let out. So, both the homes are considered as self-occupied. And the tax benefit claimed on the interest payment on both the home loans cannot exceed Rs. 2 lakhs. Condition 2 – The first home is self-occupied and the second his rented outYou must declare the rental income from your second home in the tax returns. And, from there you are eligible to get a standard tax benefit of 30% on the loan interest. And there is no upper limit on the rental income. You can also claim up to Rs. 2 lakhs against other income sources.

The tax provisions for second home loans are not difficult to understand as it may seem. As a second home buyer, it is advisable that you do your due diligence about the tax benefits available to you and take maximum advantage of it.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.