How Do I Get Income Tax Benefits from A Second Home Loan?

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Applying for a home loan is an excellent way to enjoy tax benefits. But is it possible to get tax benefits on a second home loan? How much tax can you save? Read on to know the answer.

Buying a new home is an important milestone in life. And, buying a second home is an even bigger accomplishment. In India, investment in real estate is considered as one of the safest and rewarding investments, and therefore many people invest in more than one house. With easy availability of home loans, buying a second home has become an easy endeavour. And, one of the most common concerns among second home owners is – whether they can avail a tax benefit on a second home loan?

Yes, if you are looking to buy a second home, and have applied for a home loan, you are eligible to get tax benefits. Let us understand more about the tax provision on second home loans with an example.

Let us assume that you are working in an MNC and own a home in Bengaluru for which you are repaying the EMIs. Now, if your company transfers you to Mumbai office, you leave your home in Bengaluru on rent to cover the EMIs and decide to purchase a new home in Mumbai.

Now, if you apply for a second home loan to fund the purchase of a new home, you are eligible for tax benefits under different sections of the Indian Income Tax Act. Let us know more –

Tax benefit on the repayment of the principal amount

When you pay the home loan EMI, it consists of both the principal amount and the interest component. The principal amount you repay is eligible for tax benefit under Section 80C of the Indian Income Tax Act. The maximum tax deduction you can get in a financial year is Rs. 1.5 lakhs. However, you must remember, the tax benefit under this section is inclusive of tax benefits on other investments such as public provident fund, fixed deposit, or equity linked savings schemes. Also, no matter if you occupy the second home or rent it out, you are entitled to get the tax benefit.

Tax benefit on repayment of the interest amount

The tax benefit on repayment of home loan interest amount is covered under Section 24 of the Indian Income Tax Act. The maximum tax benefit you can get in a financial year is capped at Rs. 2 lakhs. There are two conditions, under which you can get tax benefit on the home loan interest repayment.

1 – You occupy the first home and leave the second home vacant

In this situation, as per the new provisions sanctioned under Union Budget 2019, if the second home is left vacant, it cannot be deemed let out. So, both the homes are considered as self-occupied. And you can claim tax benefit on repayment of interest on both home loans subject to a maximum limit of Rs. 2 lakhs in a financial year.

2 – You occupy the first home and rent out the second home

The rent you receive from the second home must be declared in the ITR as income under the rental income head. And, then you are entitled to get a standard tax benefit of 30% on the home loan interest without any upper limit on rental income.

The Bottom Line!

Now that you are aware of the tax provisions on a second home loan, make sure that you take advantage of the tax benefits available to you and reduce your annual tax liability.

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