Home Loans have a lot of attractive features- Home loan interest rates are usually lower, the eligibility criteria fairly relaxed, and the documents required for home loans are minimal than a personal loan or business loan. Borrowers can get up to 90% of the house’s construction or purchase value as a loan. The best part? You can apply for a tax rebate on Home Loan repayment.
That is why people prefer home loans for purchasing or renovating their houses. Since this is a long-term commitment, borrowers sometimes plan to buy a second home as an investment or as another source of income. A second home loan can be quite handy in such situations. In case you are still unclear: a second home loan, as the name suggests, is the second loan taken by any borrower.
A Second Home Loan comes with limited tax benefits, which depend on the use of the loan and the current income tax law. It’s prudent to know your home loan eligibility and use an EMI calculator to analyse your eligibility before applying for a second home loan.
Read on to learn how you can get tax benefits on your second home loan:
How to Get Tax Benefits on Second Home Loan
The Indian Government allows tax rebates on second home loans under two sections of the Income Tax laws: Section 80C and Section 24. The following paragraphs explain the key features of both:
Must Read: Home Loans Tax Benefits: How to Avail Them?
Tax Benefits on Second Home Loan According to Section 80C
Home loan EMIs generally consist of two elements: the principal (the amount borrowed) and interest (the extra amount you pay). The home loan amortization schedule provides a detailed division of the principal and interest. You can find the amortization schedule by using PNB Housing’s home loan EMI calculator.
Section 80C of the Income Tax Act allows borrowers to claim tax deductions of up to ₹1.5 lakh on principal payments every financial year.
₹1.5 lakh deduction on principal applies to both the first and second home loans. This means that if your first home loan was active when you applied for a second one, the maximum tax deduction you can claim for the principal payment of both loans is ₹1.5 lakh.
You can apply for tax deductions under Section 80C, irrespective of whether the house is rented or self-occupied.
Tax Benefits on Second Home Loan According to Section 24
While Section 80C enables you to claim tax deductions on the principal component, Section 24 allows you to claim tax benefits on the interest component. You can claim tax deductions of up to ₹2 lakh if you pay the home loan EMIs. Earlier, there was no limit on how much tax deductions a borrower could claim if their property was let out.
However, in the 2019 Budget, the Government announced homeowners could claim tax deductions of up to ₹2 lakh on the interest component, irrespective of whether their property is self-occupied or let out.
Case 1: None of the Property is Let Out
Consider a scenario when your first house is occupied by you and your family, and the second house is vacant. According to the 2019 Budget, it is ‘deemed to be rented’. You have to consider both of your properties as self-occupied and claim interest deductions of up to ₹2 lakh on the interest.
Must Read: How to Avail Tax Benefits on a Joint Home Loan (3 Possible Ways)
Case 2: One Home is Occupied by the Applicant and the Other is Rented
Consider another scenario when your first house is occupied by you and your family, and the second house is rented. In this case, you have to show your rental income from the second (rented) house and pay taxes.
Although you can deduct the rent, you get from tenants considering repairs, paint, renovation, etc. If the tax paid exceeds the rent income, you claim up to ₹2 lakh against other income sources.
If you endure any loss above ₹2 lakh, you can carry it forward for the following eight (8) assessment years.
Conclusion
The Indian Government provides several tax benefits on second home loans. However, if you’re planning to get a second home loan only for tax benefits, it’s wise to know all the details. Check your eligibility using the PNB Housing home loan eligibility calculator and determine the EMIs before applying for a second home loan to avoid losing money. A home loan EMI calculator will also let you choose the right amount for claiming tax deductions, so make sure to use that to get the best second home loan.
