How to claim Income Tax Benefits on Second Home Loan?
I always look for various ways to save tax as per the income tax act. My 80C is tax benefits are exhausted, interest on housing loan for self-occupied is claimed, etc., I fall in the 30 % tax bracket. I was looking other avenues to save tax. Another avenue where I am currently looking is to save tax through second housing loan tax benefits. What are the housing loan tax benefits for second house? Can we get unlimited income tax exemption from the second home loan? What are the income tax provisions relating to the second housing loan?
What is Home Loan?
We all have come across the term ‘home loan’ many a times but very few understand its meaning in respect to its importance in income tax rebate and the way it is to be dealt. Let us understand the full meaning of it.
A home loan is a loan taken by the individuals who wishes to purchase or construct a house. Home loans have emerged as an important tool to finance your home. The property that you are intending to buy is mortgaged to the bank or financial institution from which you have borrowed the loan, as a security until the whole amount of the loan is paid together with the interest. This is generally for self-occupied property.
Also Read: Various ways to save income tax upto ₹ 10 Lakhs
What does a first housing loan mean?
Home loan taken on your self-occupied property is what I meant first housing loan. The repayment of the loan amount or interest paid there off is eligible for income tax rebate for this self occupied property. The amount paid as repayment of the principal amount of home loan is allowed as deduction under the section 80C of the Income tax Act subject to the maximum limit of ₹ 150,000. This tax benefit can be availed only once the construction of the house is completed. No deduction is allowed under the construction period under this section.
For the repayment of interest on the home loan, deduction is allowed under the section 24 of the income tax act. The maximum deduction for this is ₹. 200,000 per annum. There are various ways where you can reduce interest on your home loan.
What do the second home loan tax benefits mean?
Many people also buy a second home for different reasons. It could be for an investment, as a holiday home, or to get a regular income source via rentals. But, before opting for second home, one should keep in mind the tax implications under the income tax act 1961 of the second home. 2nd home loan tax benefit depends on a few factors.
1) If you have taken a home loan for the second house, you are eligible to claim a deduction for the interest you have paid. Under the section 24, you can claim all the interest that has been paid as the interest towards the loan amount. There is no maximum limit for the exemption on interest paid on the second home loan. However, there is no exemption that can be availed under Sec. 80C for it as it is not a self occupied property. E.g. if you have taken second home loan and it has ₹ 2.5 Lakhs as interest and ₹ 1 Lakh as principal amount, you can claim this ₹ 2.5 Lakhs as an income tax benefit.
2) If the second home is let out to a tenant, the actual rent received is treated as the taxable income under the head ‘income from house property.’ E.g. if you are getting ₹ 1.5 Lakhs as rent, you need to show this income under income from house property.
3) If the second house is yet to be constructed, but you have taken the loan from the financial institution, 20% of the total interest that you have paid in the pre-construction period is allowed as the tax deduction. However, you can claim this deduction only for five years. After that, this deduction is exhausted and you cannot claim anything. E.g. if a second home loan tax benefit under construction and pre-construction interest is coming to say RS 5 Lakhs, you can claim ₹ 1 Lakh per year for 5 years. You cannot claim pre-interest after 5 years.
How to avail second home loan tax benefits in India?
If an individual owns two houses in his name, one is treated as self-occupied and the other is treated as let-out, irrespective of the fact that it has been let-out or not. The income tax benefit is limited to the claim of the repayment of interest towards the second home loan. The repayment towards the principal amount cannot be claimed. The income earned or deemed to be earned as rent has to be shown under the head ‘income from house property’. You can claim the following deductions from this head apart from the interest paid on the loan:
- Municipality tax / Property tax – The municipality or property taxes paid during the financial year can be claimed as deduction. It is claimed on accrual basis not on payment basis.
- Repair and maintenance allowance – After the deduction of property tax for the fair rental value of the property, a flat 30% deduction is allowed in the name of repairs and maintenance. It is a fixed rebate that an individual can claim irrespective of the expenditures one has actually incurred.
Also Read: How working couples can maximum income tax?
Should you avail second home loan to get tax benefits?
We cannot say that it is always helpful for the individual from the taxation point of view to buy a second home. There are certain circumstances in which you do not get the benefit.
- If you have paid your home loan completely and there is no interest that is due on the second loan. In this case, you cannot claim the benefit and the rental value after the deduction of municipal taxes and standard deduction is added to your total income.
- Secondly, when the interest paid together with the standard deduction is less than the net annual value of the home, you do not get any benefit.
- One more point to be considered is that the second home is considered as your wealth, and wealth tax @ 1% of the value is levied on the assessed if the net wealth exceeds ₹ 30 lakh.
- If your second house is under construction, you cannot claim any tax benefit as it has been mentioned earlier that the benefit under sec.24 can be availed only when the construction of the house is complete and you have received the completion or possession certificate. However, the total interest paid during the construction period can be claimed in five equal installments for consecutive five years, i.e. 20% every year.
Conclusion: When you take a second housing loan keep these points in your mind. If you are in a high tax bracket, taking a second housing loan is always beneficial to save income tax. You can claim unlimited interest as an income tax benefit. However, any rental income needs to be shown as income. One has to pay wealth tax too. Consider these tax implications before taking a second housing loan. I feel, this could be one of the best ways to save tax provided you consider all pros and cons.
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Suresh
How to claim Income Tax Benefits on Second Home Loan
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I am availing of tax benefit on my home loan and have recently bought a landed property. The EMI for the second loan is more than that for the first one. Can I claim tax benefit on the landed property? What is the tax implication of owning two properties?
I have sold my self occupied house for which loan was taken and income tax rebate availed. Due to some reasons I have sold this house and looking for another big house with bank loan. In that case will I be eligible for income rebate on principle and interest amount. Further I intend this in joint name first my wife and second myself to save money on registry. Will both can claim income tax rebate and will this not attract capital gains tax. Kindly advise in the matter. Thanks. Vijender Singh.
Hello,
I have home loan on 2 houses in Pune. I am staying in Mumbai with my parent. My both Pune flats are rented out. From Both houses , I getting 25000/PM rent.
1) Can I show both houses in Income tax Let out Property?
2) Is full deduction of interest paid on the corresponding home loans allowed against such incomes?
3) Can I show HRA, as rented on parent house?
Regards,
Nilesh Navale
Hi
My first home is in Vadodara which is rented out. I have purchased another house in Kolkata for my own residential purpose. I am paying home loan EMI for both houses. My queries are:
1. Is the cap on Home loan tax exemption for both my houses when added together is 2 lakh or it is computed on individual house?
2. Will the wealth tax be only levied upon my let out property or both?
3. Wealth tax is computed on present market value or the value showed in sale deed ?
O can i avail home Loan benefit with house rent benefit
I want to purchase another house after selling my current house through loan.
Can I get benefits of rebate on second loan
I have purchased two adjacent flats having flat no. 404 and 403
I am taking a loan on both flats having single home loan account
Both flat having separate agreement and use for self residence
My income is from salary
Please tell me the tax implication of income tax.
sir
I have a house of my name. This house is my residential house , for this house i have not taking any loan.
I purchased a flat jointly with my wife where first name mine and second name my wife.My wife is non earnings ie house wife.In property my name first 2nd my wife as well as loan account my name also first.
Now i want to know that if i let out this 2nd flat and the earnings by let out charged to my wifes head is it possible ?
I only take the benefit of income tax us 24 . My wife will not take any benefit as her income will be only which comes from let out. If my wife return file for examption , in that case let out property will not charged to my head.
Is this possible ? pls help me by giving your valuable suggesition
I have taken a home loan in 2008 for a 2 BHK and the loan fully repaid. Now my need is a 3 BHK and i propose
to buy a 3 BHK which is under construction under home loan. What is the income implication in this case.
The construction started in 2016 onwards and likely to complete in Oct 2018.What will be the implication on income benefit in this case.
Hi,
Request to let me know how can I get maximum IT benefit in the case where I have a joint property in my name along with my mother and brother, until now, I have been claiming the IT benefit. Last year I purchased, another property registered in both my name and my wife's name. How can I go for the maximum IT benefit in this case. Can I give a declaration that I no longer claim for IT benefit for first house and utilize for second one, please advise. Both the properties are in Bangalore.
thanks,
Sushil
First house loan taken and rented out at Bangalore. Second house ancestral property rented for commercial at Madurai. How should I go about for maximum benefit for income tax?
I have purchased a house for which I have already taken a home loan. However I want to purchase another under construction house taking home loan. After completion of the same, I would sell my current property and move to the new house. Pl explain the tax benefits applicable in such a case. Thanks,
My first home is at Surat and second home is at Vadodara and i m staying in vadodara. Can i used my first home of surat as self occupied and 2nd home of Vadodara as let out or it is mandate to use vadodara home as my self occupied as i m leaving in same city.
Any one home needs to be shown as a let out. One property is considered as a wealth and you need to show rent in your head income and it is taxable. if you do not show then standard market value will be considered.
I am having two housing loans availed by me. One is in my personal name and the second one is in the name of my self and my wife. I already availing income tax benifits for the first housing loan. However for second housing loan till now I have not availed any IT benefit. Loan taken for second housing loan is in the year 2012 and given for rent in the year 2014 for some months. Whether I can claim income tax benefit for earlier period or I have to claim only for present year. The loan is totally paying by me only.Whether I have divided the rent on house and income tax benefit for both of us.Please clarify.
In my case, we have 2 housing loans. In both the loans my wife is main applicant & I’m co-applicant. 1st loan house is self occupied & 2nd home loan is under construction. Is it ok if my wife opt to avail 100% benefit of fist loan & I will avail 100% benefit of 2nd loan.
Please guide
Good description and examples in understandable format.
I seek advise for the following scenario.
First housing loan is closed and the property is let out. Second loan is running and it is a self-occupied property. Can i claim unlimited interest for the running loan and show the rent for the first house as income?
Pl. confirm if construction period condition of 5 years limiting to Rs. 30,000/- of intrest is applicable in case of let out residential property ( Not SOP) .Relevant link /extracts of IT section may be mentioned for showing in my office please,
In other words am I eligible for intrest component Rs. 30,000/- rebate or no limit for intrest component rebate in let out residential property . I got possession in Dec 2016 and housing loan was sanctioned in March 2011. Pl. guide
If Ist home is used by my parents and second home is used by me personally for living. Both the homes are located in different cities. Could I avail tax benefit on interest paid on my 2nd homwe loan? if yes then how should I get the benefits?
I had taken loan for house. The loan and interest has been paid and I took benefit of income tax. NOw I intend to sell this house and want to purchase a ready built house for my use. Kindly inform how much income tax rebate will be to me. Thanks
What if I have not given out the second home on rent, what is the amount I need to submit
I have a house in my home town. Outstanding Home loan on this house is less than 1 lac. I want to purchase a flat in another city & want to avail home loan of 40 lac. Will I be able to get full tax benfit (80C & sec 24)on 2nd home loan of rs 40 lac. Should I repay my 1st home loan?
Hi Suresh
I have a flat in my hometown and a flat in bangalore but I am working in another location
So in this case will I be able to claim HRA as well as the tax benefits on both my first and second home?
Regards
Chandra