Complete Guide on Second Home Loan Tax Benefit in India

Complete Guide on Second Home Loan Tax Benefit in India

If homeowners want to enhance their investment portfolio, or want to generate more income they can consider purchasing a second home. However, before opting for a second home with a loan, one must know how to reduce the tax burden.

Check out the various scenarios in which a second home loan tax benefit in India can be claimed. Also, one needs to be aware of the tax deduction rules in the case of a second home.

Details about second home loan tax benefits

Here are cases in which individuals with a second home loan can avail tax deductions:

In case one house is on rent

If an individual purchase a second home using a home loan and rents it, then the rental income received is considered taxable. But according to the tax rules cited under the Income Tax Act, the entire rental income is not taxable; these are subject to certain restrictions. 

The taxpayers can deduct the rent amount that their tenants are paying them from the total amount that they are spending to make the home ready to live in. It includes costs like installing new fixtures or parts, repair costs, maintenance charges, etc. 

As per Sections 24 and 80C of the Income Tax Act, one can claim the maximum tax benefit on home loan up to Rs.1.5 lakhs and 2 lakhs, respectively, towards both principal and interest repayment in case of a self-occupied property. 

However, one can only avail second home loan tax benefit in India towards interest repayment, regardless of whether the second property is substantially let-out or deemed to be let out.

In case both houses are on rent

Suppose the home loan borrower decides to settle abroad and put both their houses on rent; in this case, the rental incomes from both homes are considered taxable. 

The only good part is that as per Section 24 of the Income Tax Act, the home loan EMI that the borrower needs to pay for both properties as per the current home loan interest rate will be eligible for complete interest deductions.

In case none of the  properties are put on rent

The owner can choose to not put any of his purchased houses on rent. But as per the Income Tax Act, no matter how many properties one owns, the government considers one to be self-occupied property, while the other one is considered as “Deemed rented out.”

In this case, the assumed rent income from the second house is considered completely taxable. This amount is decided dependent upon the location where the property is located.

Furthermore, if the owner purchases home insurance cover for their second home, then a deduction on the premium paid can be claimed as per Section 80C of the Income Tax Act.

These are some of the must-have information regarding the second home loan tax benefit in India. Second-home buyers must go through this guide to get a complete idea of the benefits and tax deductions that they can avail of.

Various NBFCs and financial lenders often provide pre-approved offers to their customers on varied financial loan products like loans against property and others. These offers can help to simplify the home loan application process. Borrowers can check their pre-approved offers from the lender’s website by providing the required credentials like their names and contact numbers.

However, before opting for a second home loan, one should ensure to check different lenders and check who is offering a home loan at competitive interest rates and attractive loan terms.