Home Loans and Tax Benefits That Owners of Multiple Homes Get

Dev Singhraha

Relocation Expert

Today purchasing a property is considered one of the safest investments, due to increasing demands of properties. So one can anytime expect a hike in the value of property in future. Buying a second house financed with a bank loan can be an attractive investment as it also brings a lot of tax incentives. There are various reasons why people plan to buy a second house property like to use it as a holiday home, as a capital investment, to earn regular income in the form of rent, to diversify the investment portfolio etc. it’s necessary that the person takes any such decision after looking at all the things in details as it is usually a long term investment. Buyer needs to understand the tax implications under the Income-Tax Act 1961 of owning and maintaining the second home.

Tax benefits for Principle Component: As per the rules laid down under Section 80C person can claim up to Rs 1.5 lakhs which could be claimed for the deduction if the person is living in the house that he has taken a loan for. While this amount could not be claimed for if the property under construction or for the house in which the person is not living. However, there is an exception that person can claim the amount if the person is living in a different city than he can claim exemption on the principle amount. The person can purchase any number of homes but the amount is restricted only up to Rs 1.5 lakhs. This deduction is only applicable once the person gets the possession in hand and if the person starts repaying the loan before getting the possession than he cannot claim any tax deduction.

Tax benefits for Interest Component: Person can claim a deduction on interest payable on home loan which could be for various reasons like loan taken for purchase, construction, repair, or renovation of any property under Section 24b. If the person owns only one property which is self-occupied than the maximum deduction which a person can get is up to RS 2 lakhs per annum. However good part is there is no limit on the deduction for interest payment on the second loan. This rule is also applicable to the second property as well the interest paid on a loan taken to buy it is tax-deductible. However, if the person is not allowed for deduction on principal amount than he can always claim a deduction on the interest. If the property is rented out then the entire amount of interest could be claimed for a tax deduction.

Taxability under different scenarios

One of the house properties is rented out, so another is used for residence. So in such case rental income received from the let-out property is taxable and interest paid on a loan taken for such a property is fully tax deducted against such income. The self-occupied property will have NIL income, but interest deduction on the home loan if any is limited to Rs 2 lakh.
Income from all the homes is taxable in nature though the second house may be lying vacant the Income Tax Department will consider that it has a rental value in order to calculate the tax.
If both the houses are rented than respective rental income from the bot the property is taxable and a full deduction of interest paid on the corresponding home loans is allowed against such incomes.
If the person has several houses than he can consider any one as his primary house and other as let out so the income from the primary house will be considered nil and exempt from tax even if it’s rented out. It is for this house that the limit of Rs 2 lakh applies for deduction on loan interest.

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