Buying a second home can be an investment for some and a need for others. Whatever the reason, if you avail of a second home loan for buying a second house, you can avail of the tax benefits on the loan repayment. Do you know how?
Let’s understand –
Tax benefits of a second home loan
Here are the different tax benefits that you can avail of if you apply for a second home loan –
- Tax benefit on principal repaid
The principal amount of the loan that you repay is allowed as a deduction from your taxable income. The limit is Rs.1.5 lakhs under Section 80C.
Point to note – If you have an existing home loan, the principal repaid for the same would also be included in the limit of Rs.1.5 lakhs. This means that aggregate principal paid for the first and the second loan would be allowed as a deduction under Section 80C, up to Rs.1.5 lakhs.
- Tax benefit on interest
The home loan interest also allows tax exemptions. However, the exemption would be subject to the following conditions –
- One house is self-occupied and the second is vacant
If you don’t occupy the second house and don’t even put it on rent, the interest paid on the second home loan would be allowed as an exemption up to Rs.2 lakhs under Section 24(b). The limit of Rs.2 lakhs will apply if you are paying two loans. The aggregate interest paid for both the loans would be exempted up to a maximum of Rs.2 lakhs.
- Both houses are vacant
If both the houses are vacant, you can claim a maximum exemption of Rs.2 lakhs under Section 24(b) on the aggregate interest paid for both home loans, i.e., first and second.
- One house is self-occupied, and the other is rented out
If you rent out the second house, the interest paid for the first home loan would be allowed as an exemption up to Rs.2 lakhs under Section 24(b). For the second home loan, the actual interest paid would be allowed as an exemption.
The rental income earned from the second home would be taxed in your hands. However, you can claim the interest paid as a deduction from the taxable rental income and bring down your tax liability. If the interest paid is higher than the rental income, you would incur a loss. Such a loss, up to Rs.2 lakhs, can be set off against other incomes in the same financial year. If the loss exceeds Rs.2 lakhs, the excess loss can be carried forward for up to 8 financial years and set off against income from house property.
Tax benefit for co-borrowers
If you are applying for a second home loan with co-borrowers, each co-borrower can claim tax benefits on the home loan interest rates and principal. The deduction under Section 80C for the principal amount and the exemption under Section 24(b) for the interest would be allowed independently for each co-borrower.
A second home loan, thus, can not only help you finance another house but also avail of additional tax benefits. If you rent out the second home, the tax benefits increase. So, check your home loan eligibility to find out if you can avail of a second loan. Compare home loan interest rates offered by lenders to find the best scheme. Also, use the home loan EMI calculator to ensure that the aggregate EMIs do not strain your budget. Then, apply for a second home loan and claim the tax benefits.