Income Tax Benefit on 2nd Home Loan

Are you moving to a new city and intend to take out a loan to purchase a second residence there? If you are considering taking out a second house loan, you should read this article as it will provide you with a comprehensive understanding of the tax advantages of doing so. According to Section 80C and Section 24 of the Income Tax Act, you can avail of tax savings on house loan repayments. However, if you are planning to rent one of the properties, there can be some variances in tax advantage laws. For a thorough explanation of the tax deduction guidelines for a second house loan, continue reading.

---

Table of Contents

• Home Loan Tax Deduction under New Regime

• Income Tax Benefit on 2nd Home Loan

• Calculation of Tax Benefit on Second Home Loan

• Steps to Claim Tax Benefits on Second Home Loan

• Conclusion

• FAQs

---

Home Loan Tax Deduction under New Regime

You will not be eligible for the Section 24(b) interest deduction or the Section 80C principal payback if you are choosing a new tax regime and taking out a second home loan that you intend to use for your own residence. However, if you are buying a home as an investment to rent it out, you will not be subject to the interest deduction restriction under Section 24(b). However, there is no deduction available under section 80C.

Income Tax Benefit on 2nd Home Loan

You need to be aware of how to take advantage of tax benefits on a second home loan if you are applying for one to buy a new house. Borrowers are eligible for tax deductions on the principal amount under Section 80C of the Income Tax Act. On the other hand, you can deduct the interest costs associated with your house loan under Section 24(b). The tax regulations pertaining to a second home loan are contingent upon the reason for your acquisition. Here's how to claim tax benefits based on how your second house is used:

• When you rent out one of your homes, the Income Tax Act states that the money you make by renting out your home is taxable. You can, however, deduct interest paid on a home loan up to a certain amount, and you can take a normal 30% deduction on Net Annual Value (NAV).

• You are not allowed to rent either of your homes when they are both unoccupied; in that scenario, both properties are considered "self-occupied." The maximum amount of interest you can collect on a home loan for both residences combined is two lakhs.

• If both homes are rented, you are entitled to unlimited interest on both homes' loans.

When determining the capital gain on the sale of a property, the cost of the property will not include any interest or principal that was claimed as a deduction on the income tax return.

Calculation of Tax Benefit on Second Home Loan

• Deduction on Principal: You can deduct up to Rs 1.5 lakh from your principal repayment amount under Section 80C of the Income Tax Act. In the event of a second home, this deduction amount stays the same.

• Deduction on Interest: Whether your property is self-owned or rented determines the tax benefit for interest expenses. The deduction of interest expenses is unlimited when it comes to a rental property. The maximum amount of interest paid on self-occupied homes is Rs. 2,00,000, not per home.

For instance, you already have a property loan with interest payments of Rs. 75,000 annually. You can only claim an interest deduction of Rs. 1,25,000 if you are taking out a housing loan for another residence.

Steps to Claim Tax Benefits on Second Home Loan

Here are the measures to follow if you're unsure how to receive tax benefits on your second home loan:

Step 1: You have to own or co-own both the primary and second residences. Determine your second home loan's tax benefit amount in advance.

Step 2: Give the employer your home loan sanction letter.

Step 3: Send in the interest certificate for the house loan. Your employer will be able to modify the TDS computation with its assistance.

Step 4: Your employer will continue to deduct TDS from your pay without taking this deduction into account if you don't present this certificate.

Step 5: If so, you can claim the deduction on your tax return and receive a refund for the excess TDS that your employer withheld.

Illustration: Assume for the moment that Mr. A already owns a house in Delhi and is paying back the mortgage on it. But for work-related reasons, he must go to Mumbai. Therefore, Mr. A chooses to rent out his current house and use a fresh home loan to purchase a new one in Mumbai. The question now becomes whether he qualifies for a second house loan and whether he would receive tax advantages from it. In accordance with sections 80C and 24 of the Income Tax Act, Mr. A is eligible to receive a second house loan and to claim tax benefits.

• Interest deductible on an accrual basis: Whether or not interest is paid during the year makes no difference. Therefore, as long as interest is collected during the year, it is deductible even if it is not paid. But interest on interest that hasn't been paid isn't deductible.

  
  

• Interest deductible in other situations: If the buyer and seller agree to pay the agreed price in installments, the amount that has not been paid may be considered a loan, and Section 24(b) would allow the interest paid on that amount to be deducted.

  
  

Conclusion

According to the Income Tax Act, you can therefore invest in a second home and benefit from tax benefits; however, in order to claim tax benefits on the second home loan, you must ensure that you own both properties and use them appropriately. The amount and availability of tax benefits vary depending on a number of factors, including the tax regime chosen, the self-occupied versus the rented property, the amount of interest and principal portion, the outstanding loan on the first house, etc.

FAQs

Q1. Who can claim tax deductions on housing loans?

Home loan tax deductions are only available to the property's owners. Each borrower may claim a deduction for house loan interest based on their ownership ratio if the loan is taken out jointly with a spouse.

Q2. Are there any tax benefits on a second home loan?

Yes, it will be deemed self-occupied if the first house is occupied and the second is unoccupied. The interest paid on both residences can be deducted from taxes in this situation. But it can't be more than Rs 2 lakh. You must report the rental revenue from the second property when the first is occupied by you and the second is rented. The typical 30% deduction, house loan interest, and paid municipal taxes can then be subtracted.

Q3. What is the maximum tax benefit one can avail of on a second home loan under both regimes?

The principal amount paid for a home loan (including a second home loan) can be deducted up to Rs. 1,50,000 under section 80C, and interest is deductible up to Rs. 2,00,000 under section 24(b) for self-occupied properties and up to Rs. 2,000,000 for rented-out properties, provided the old tax regime is chosen. Section 24(b) of the new tax regime allows interest on rented-out property to be deducted without a ceiling. There would be no other deduction.

Q4. Can I claim the benefit of interest deduction for a second home loan under Section 80EEA/80EE?

No, only first-time homebuyers are eligible for the interest deduction under these sections. Therefore, you are not eligible for a second house loan under these rules.

Q5. What will be the tax benefits if I want to opt for a new regime and also purchase a home through a second loan?

In that scenario, the Section 80C benefit is not available, while the Section 24(b) interest deduction benefit is only available if the second residence is rented out.

Q6. Can the loss under the head ‘income from house property’ be set off against any other head of income?

Losses from real estate can no longer be deducted from other sources of income under the new tax regime, however, they could be deducted up to Rs. 2,000,000 under the previous one.