Tax benefits of a second home loan

A second home loan makes sense as it comes with tax benefits, especially when rented.

Mr. Arora already has one house in Mumbai for which is paying EMIs. He has to move to Chennai for job purposes. So Mr. Arora puts his Mumbai home on rent to cover his EMIs. He decides to buy a home in Chennai too, rather than staying on rent. 

Can he take a second home loan? Also can he claim tax benefit on a second home loan?

Yes. An individual can take a second home loan. Also, one can claim tax benefits on the second home loan. Let us see how.

Deductions under section 80C: Home loan repayments consist of principal and interest. Deduction on principal repayment is available for a maximum of Rs 1.5 lakh under section 80C. Even when you have a second home loan, the maximum deduction for principal payments will still be Rs 1.5 lakh. Also remember that 80C deduction also includes investments like life PPF, ELSS, etc.

You can claim this deduction on more than one house property. Also, it does not matter if the house properties are self-occupied or rented. To sum up, income tax benefit on second home loan and the first home loan for principal repayment can be up to a maximum Rs 1.5 lakh under section 80C.

Tax benefit of on interest payment: When considering home loan tax benefit on a second home, we also need to consider the deduction available on interest payment. Deduction available on interest payment is available under section 24. In case you own only one house, you can claim a maximum deduction of Rs 2 lakh on interest payment.  For a let out property there was no upper limit on claiming interest as deduction. But from Budget 2019, you can consider your second house as self-occupied.  So even if it is vacant, it cannot be deemed let out. Let us consider second home loan tax benefits under two different conditions.

1. 1. The first home is self-occupied, and the second home is vacant: According to the latest provisions in the budget, the second home cannot be deemed let out. So both the houses will be considered self-occupied. Interest claimed on both houses cannot exceed Rs 2 lakh.

2. 2. The first home is self-occupied, while the second is on rent: You have to declare the rental income of the second property. From there you can deduct the standard deduction of 30 percent, interest on the loan ( without any upper limit) and the municipal taxes paid. You can also claim up to Rs 2 lakh against other income sources. Any loss above Rs 2 lakh can be carried forward for the next eight assessment years.

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