For the average Indian, buying a house is always a big event, and buying a second one? All the more. While some choose to leave their second home idle, considering it to be a financial asset, there are others who choose to put it on rent to enjoy a secondary source of income. Are you also planning to buy a second property? Then, the first thing you need to know is that tax benefits on the second home loan will be different than the first.
Understanding the two components of house property
The first step to knowing the taxability of a property is to understand the two major components of it – self-occupied property (SOP) and let-out property (LOP). The former refers to a residential property that the taxpayer uses for her own residence, whereas the latter refers to a residential property that is let out on rent.
Another critical thing to note here is that even if the taxpayer has not put the property on rent, it will still be “deemed to be let out” and, as a result, taxed accordingly. Moreover, the income from the property will be taxable once the homeowner receives all property rights.
Tax benefits on a self-occupied property
For the first home, Section 80C of the Income Tax Act states that the homeowner will be eligible to claim a tax deduction of up to Rs. 1.5 lakhs on the loan principal. Additionally, Section 24 makes provisions for tax deductions of up to Rs. 2 lakhs on the interest payment. However, tax benefits on home loan for a second property extend only to the interest portion.
However, if both the properties are claimed as self-occupied, the tax benefits on the interest aspect of the home loan only extend up to a maximum of Rs. 2 lakhs in a financial year.
Tax benefits on a let-out property
In case you’re planning to put one of your properties on rent, the rental income you receive will be considered to be the gross annual value of the property, and the same can be claimed for deduction of up to 30% of the income. Moreover, the municipal taxes and the entire interest paid on the home loan will also be eligible for tax benefits. Over and above this, you are also eligible to claim up to a maximum of Rs. 2 lakhs as deductions against income from other sources.
Planning to purchase a second home using a housing loan? Compare lenders to get the most competitive interest rates, determine your loan eligibility, and check all terms and conditions before you proceed. You must also assess your repayment capacity in advance using an easy-to-use online tool such as the home loan EMI calculator.
