While most home loan customers are aware of the income tax benefits associated with their loans, many buyers are unsure if these benefits are still valid if the loan is taken out a second time. That’s a resounding yes, of course. To learn more, keep reading.
The tax benefits on home loans were previously limited to only one loan, despite the fact that buying a home has historically been seen as a solid investment option. An individual can now claim tax benefits for two home loans, though.
Before the financial year 2019–20, a person who owned two homes might claim income tax advantages in relation to the home that the owner-occupied themselves. The person was required to pay taxes on the second home or property based on the notional rent, which is the sum that is received as rent from the property.
Tax benefits on second home loan
Deduction under section 80c
Principal and interest are the two components of home loan payments. Section 80C allows for a deduction on principal repayment of up to Rs 1.5 lakh. The maximum deduction for principal payments will always be Rs 1.5 lakh, even if you hold a second home loan. Also keep in mind that investments like PPF, ELSS, etc. are included in the 80C deduction.
This deduction is available for several residential properties. The self-occupation or rental status of the residential properties is also irrelevant. In conclusion, section 80C allows income tax benefits for principal repayment on second and first home loans of up to a maximum of Rs 1.5 lakh.
Tax benefits on interest payment
We must also take into account the interest payment deduction when evaluating the tax benefit for a second home loan in India. Section 24 provides for a deduction on interest payments. If you just own one home, you can deduct up to 2 lakh rupees from your interest payments. There was no maximum amount that may be deducted for interest on a property that was rented out. However, starting with the 2019 Budget, you can count your second home as self-occupied. Therefore, it cannot be considered let out even though it is vacant. Let’s look at the tax advantages of second home loans in two separate scenarios.
The first home is self-occupied, and the second home is vacant
The second property cannot be deemed to be rented out in accordance with the most recent budgetary provisions. Therefore, it will be assumed that both homes are occupied. There is a 2 lakh rupee limit on the interest claimed on both homes.
The first home is self-occupied, and the second home is on rent
The second property cannot be deemed to be rented out in accordance with the most recent budgetary provisions. Therefore, it will be assumed that both homes are occupied. There is a 2 lakh rupee limit on the interest claimed on both homes.
Procedure to claim home loan tax benefits
- Make sure the first and second home loans are in your name initially. Ensure that you are the only owner of both residences or the co-owner in the case of a joint loan application.
- To avoid unwanted delays and time-consuming tasks in the future, figure out the tax benefits of a second home loan in advance. Several reputable banks’ official websites offer a free home loan tax advantage calculator that you can use.
- Send your employer a copy of the Home Loan Interest Certificate so they can make the necessary TDS adjustments. If you don’t, normal TDS deductions from your salary will continue without any benefits. You could also be needed to provide your loan sanction letter.
- In the event that step 3 is missed, you will need to file income tax returns in order to claim the tax advantages.
There are various reasons to purchase a second house, including the desire to maintain a dwelling in your hometown, the desire to purchase a vacation home, or the desire to generate additional income through the rental of your property. You can think about getting a second home loan to construct another nest for your family now that tax incentives are now accessible.
