Income Tax Benefit on Second Home Loan

Tax Benefits on Second Home Loan

Check about Income Tax Benefit on Second Home Loan

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Purchasing a home is always considered a good investment option. Tax benefits are an added advantage when you avail a home loan. While most home borrowers are aware of this, many are unaware of the tax benefits on second home loans. If you take a loan for the second time, you are eligible for 2nd home loan tax benefits. 

Earlier, the tax exemptions were restricted to only the first house loan. However, the good news is that you can also claim income tax benefits on a second home loan. 

Before 2020, an individual who has two houses in his name was eligible to claim income tax benefits only for the self-occupied house. Hence, for the second house or property, the owner must pay taxes for the amount they receive as rent from the house or property. This amount is called notional rent and is subject to tax. Now, an individual can claim an income tax rebate on a second home loan after the amendments made by the government, and the notional rent is not subject to tax.

Let us check out the details of the home loan tax benefit for a second home here. 

Tax Benefits on Second Home Loan

In the financial budget for the Financial Year 2019-20, the Union Government of India has made significant changes regarding the tax exemption on second home loans. As per the new norms, a house owner can declare two houses as self-occupied. So, an owner can enjoy the benefits of the second home interest deduction in addition to the first home interest deduction.

Under various sections of the Income Tax Act, 1961, here are the home loan tax benefits available now.

  • Under Section 24(b) of the Income Tax Act, 1961 - Tax benefits of up to Rs. 2 Lakhs can be claimed on the interest paid as repayment on the property that is declared self-occupied.

  • Under Section 24(b) of the Income Tax Act, 1961 - Complete interest paid can be claimed as tax benefits on the interest paid as repayment on let-out property.

  • Under Section 80C  of the Income Tax Act, 1961 - A maximum permissible limit of up to Rs. 1.5 Lakhs as tax benefits on the principal loan amount repayment, including registration fees and stamp duty. 

These income tax benefits are calculated per person and not per property. So, if you apply for a joint home loan to finance a second home, each owner of the house or property can separately claim second home loan interest tax benefits and save more money. Please note that it is subject to the actual payment incurred in relation to the principal and interest.

 

We should consider two scenarios when second housing loan tax exemptions are discussed. 

  • If the first home is self-occupied and the other home is vacant, the second home cannot be deemed let out. As a result, both houses can be tagged as self-occupied, and the total interest claimed shall not exceed Rs. 2 Lakhs considering both homes.

  • If the first home is self-occupied and the other house is on rent, the rental income of the second property should be declared. Tax deduction of up to 30% can be claimed on the loan interest component along with the total municipal taxes paid, irrespective of any limits. Up to Rs. 2 Lakhs can be claimed against other income sources. All losses above this amount will be carried forward for the next eight assessment years.

Procedure to Claim Tax Benefits on Second Home Loan

Here is a detailed procedure to claim income tax benefits for a 2nd home loan:

 

1. First and foremost, ensure that both the home loans - first and second, are in your name. If it is a joint loan application, make sure you are an owner or a co-owner of both homes.

2. To save time and unnecessary hassles in the future, calculate the tax rebate on a second home loan in advance. For this, you can make use of the home loan tax benefit calculator available online. These calculators are completely free and are available on the official website of the reputed banks.

3. To adjust your TDS calculation, submit your home loan interest certificate to your employer. If you fail to do so, it will result in the recurring deduction of TDS from your salary. Note that it will be devoid of any benefits. Also, you may be asked to submit your home loan sanction letter.

4. If you forgot to submit your home loan interest certificate, you will have to file income tax returns to claim the housing loan tax benefits for the second house.

 

A second home could become your holiday property, a source of income, a nostalgic ode to your hometown, and many more. Whatever the reason may be, now you can consider taking a second home loan to finance another nest for your family while enjoying the tax benefits on a second home loan. 

2nd Home Loan Tax Benefit FAQs

  • ✔️How does taxation of a second home work?

     

    In the financial budget for the Financial Year 2019-20, the Union Government of India has made significant changes regarding the tax exemption on second home loans. As per the new norms, a house owner can declare two houses as self-occupied. So, an owner can enjoy the benefits of the second home interest deduction in addition to the first home interest deduction. Under Section 24(b) of the Income Tax Act, 1961, the complete interest paid can be claimed as tax benefits on the interest repayment on let out or second property/home.

  • ✔️Can I avail tax benefit on a loan against property?

    Yes, if the funds from the loan against property are used for financing your new home, you can avail tax benefits on a loan against property. The total interest paid on your loan against property is eligible for tax deductions under Section 24 of the Income Tax Act, 1961. Benefits of up to Rs. 2 Lakhs can be availed under this section.

  • ✔️ Is top-up home loan interest eligible for tax exemption?

    Both the principal and interest components of the home loan are subject to tax deductions under Sections 80C and 24 of the Income Tax Act, 1961, if the top-up loan is used to buy or build a new home. But, the tax deduction can only be claimed for the interest component in case the funds are used for renovation or alteration or repair of the residential property renovation.