Second Home: Are there tax benefits on second home loan?

Some people own a house but buy a second house on loan and rent it out. But not everyone knows that income tax benefits can be availed on second home loan. In the Budget 2019-20 itself, the government introduced several changes in the Income Tax Act. This made it possible for owners to avail tax concession on second home loan. Earlier such concession was available only on a home loan. Now they can get tax concessions on second home loan as well.

Tax benefit

People who own two houses are eligible to avail certain benefits on their loans. When a person buys two houses, one of the two houses is considered as Self Occupied house. On a self-occupied house, under Section 24(b) of the Income Tax Act, an individual can avail a tax benefit of up to Rs.2 lakh on interest payments related to their loan. A second home is treated as a rental property and taxed on the rental income as per the Income Tax Act. It is treated as 'Deemed Let Out Property'. However, the taxpayer can claim deduction of 30 percent of the rent for house maintenance. As per Section 24(b) of the Income Tax Act, the entire amount of interest paid on the second home loan (without any ceiling) is deductible.

Other benefits

Under Section 80C, a deduction of up to Rs.1.50 lakh can be availed on principal loan amount including registration fee and stamp duty while buying a second home. If the second house borrowed is under construction, the interest paid during the construction period can be claimed at the rate of 20% per annum for five years after the construction is completed instead of lump sum. Also, 30 percent of the gross annual value of the second home is allowed to be deducted from the taxable income. It is considered for maintenance and repairs.

Income Tax

Deductions can be claimed on interest and principal paid on first and second home loans under the Income Tax Act. Principal repayment under Section 80C of the Income Tax Act is also exempt subject to a maximum limit of Rs.1.50 lakh. To maximize the tax benefits available to you, it is advisable to plan the loan structure carefully. For example, you can declare a low-interest-paying property as self-occupied to fully utilize the interest deduction limit. Consult with a tax professional to devise a highly beneficial strategy based on your circumstances.