Tax Benefits On Second Home Loan: Everything You Need To Know

Owing to a significant reduction in interest rates, most individuals are leaning towards home loans to finance a property purchase. If you are making such investments for the second time and acquiring funds for that through a home loan, there are certain tax rebates you can enjoy. 

Let us help you understand on which conditions you can claim tax benefits on a second home loan!

How Taxation of Second Home Works?

Individuals planning to purchase a second house property must know how taxation works on that. Before understanding the taxability of immovable property, you should know that there are two types of housing properties:  

• Self-occupied property
• Let-out property

The former is basically a residential property, and its annual value is evaluated to be NIL due to being treated as self-occupied. However, in the case of the latter, since it is considered as ‘let-out’ or rented, the income generated through the rent will be subject to tax. This means that your rental income will be taxable under the ‘Income from house property’ head.

Note that even if you do not rent out that particular property, a notional rent value will be regarded as gross taxable rent in such cases. Sometimes, individuals decide to rent out both these housing properties and start residing in a different house. In such a scenario, the total income you receive as rent (from both houses) will come under the purview of tax. 

Irrespective of whether it is a self-occupied or a let-out property, you can claim tax deductions u/s 80C for both cases. Refer to the following section to know how!

Also Read – How To Compare Home Loans With A Home Loan EMI Calculator?

Tax Benefits Available on Second Home Loan 

If you want to understand how to get tax benefits on a second home loan, you need to be aware of the deductions available u/s 80C of Income Tax Act. Under this section, one can claim a deduction of up to Rs. 1.5 lakh on principal repayment. Note that income tax benefit on a 2nd home loan will be available up to this limit only. Such tax benefits are also applicable to investments like ELSS, PPF. etc. 

Other than Section 80C tax benefits, here are some additional tax deductions available on second home loan:

• If you own two self-occupied properties, one of these two houses will be considered as DLOP or ‘Deemed Let-out Property’. Even though the rental income you acquire from that will be taxable, you can still enjoy tax rebates. For maintenance purposes and general upkeeps, the owner of that ‘let-out property’ can claim a tax rebate of 30%.   
• Under Section 24 of IT Act, one can avail income tax benefit on interest payment of the second home loan. In that case, a deduction of up to Rs. 2 lakh will be available for taxpayers.

Note that as per the clauses of Section 24, the second home will not be considered let-out even if it is vacant. However, keep in mind that the deduction on interest payment you are claiming for both these properties do not go beyond Rs. 2 lakh.  

Also Read – Top Up Home Loan

Things to Keep in Mind before Buying a Second House 

Although the home loan interest rates have reduced substantially, which makes financing your second house easier, there are certain aspects you need to consider before investing again:

• Pay attention to its location
• Check the potential return on investment from it.
• Make sure the property purchase does not hamper your financial planning.
• Check if tax benefits on second home loans are available.

Apart from these, there are some additional financial aspects you should pay heed to. In case you are still paying the EMIs for your first home loan, you need to check the eligibility factors for the second one as well. You also need to look for financiers that find you credible enough to bear the home loan EMI. 

In this regard, it is equally essential to find lenders who are offering the lowest home loan interest rates. With Navi, you can obtain up to Rs. 10 crore, where the home loan interest rate starts from 6.46% p.a. To avail a home loan, download the Navi app today!

Final Word 

The availability of tax benefits on a second home loan inevitably makes the purchase much more affordable. However, make sure you are aware of all the conditions associated with it to make use of these benefits. 

Frequently Asked Questions 

Will I be able to avail tax benefits on second home loan as a co-owner of that property?

Yes, you will be able to enjoy tax rebates under Section 80C as a co-owner on the second home loan. These deductions will be available on the stamp duty you paid in that year or the principal portion of the loan. Additionally, tax deduction up to Rs. 2 lakh (for each co-owner) will be available if both these properties are self-occupied. Note that the availability of tax benefits to both of you will depend on the ratio of ownership.  

How much is the maximum tax deduction available on the principal repayment of a home loan?

Under Section 80C, tax deduction for principal repayment of a home loan can be up to Rs. 1.5 lakh p.a. However, you must meet a few conditions. Firstly, the property’s construction must be complete before you can claim this benefit. Furthermore, you cannot sell the property within 5 years of acquisition. 

What are the eligibility criteria for claiming tax rebates on home loans?

If you have purchased a new residential house for either rent-out purposes or self-occupation, you will be eligible to claim tax deductions. Such benefits will be available under Section 24, 80C and 80EEA. Note that the perks are applicable to co-owners and co-borrowers as well.

Are the tax benefits under Section 80EE over and above the benefits u/s 24(b)?

Under Section 80EE, borrowers can claim up to Rs. 1.5 lakh as tax benefit on the interest payment of their home loans. This amount is in addition to the Rs. 2 lakh exemption available u/s 24(b).

Am I eligible for tax benefits on my home loan top-up?

Generally, a home loan top-up does not qualify for tax benefits. However, you can claim tax rebates on such loans under Section 80C and Section 24(b) under the following circumstances:

• If you avail a loan to renovate or repair the purchased property
• If you acquire the advance for the construction of a property

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