Everybody dreams of a house, whether big or small. In most cases, this dream comes true because of a home loan. People with a job often take home loans to buy properties. Moreover, a home loan lets an individual enjoy tax benefits.
What if you need a second house? Rent or buying a home is the only option. What happens when you plan to buy a second house and take a second home loan for it? Will you get any relief from income tax on the second home loan? This article will discuss the taxation benefits of a second home loan.
Moreover, we will also look at two scenarios; first, when you already have a first home loan running, and second, when the first home loan is cleared.
Understand Deductions Under Section 80C
Principal Amount and Interest are two primary components of home loan repayment. Under section 80C, the maximum amount for a deduction on principal repayment is INR 1.5 lacs. The same amount of deduction applies to your second home loan and is capped at 1.5 lakh rupees.
Whether your second house is rented or vacant, it is still eligible for income tax benefit under section 80C. Now, we will see how an individual can enjoy joint home loan tax benefits.
What Happens When You Already Have A Home Loan?
Living on rent or buying a home at a new place is a dilemma for many individuals when they already have an existing home loan. This situation occurs when you have to shift to another city due to work commitment. Will you get a similar tax benefit on your second home loan if there is an existing home loan? The short answer is No! Tax benefit under section 80C is capped at 1.5 lakh rupees, and you can’t go beyond it.
You can still avail of joint home loan tax benefit on your second home loan in this condition, that is, if you rent out your second property. 1/3 of your rental income is tax-free because, as per regulations, it is used for repairing work or maintenance of the property. Now, only 2/3 rd of your rental income is taxable, but you are already paying interest on your first home loan; the remaining 2/3 rd of your rental income becomes tax-free.
What Happens If You Have Cleared Your First Home Loan?
If you cleared your first home loan, then the same rules apply to your second home loan, and you can avail of the deduction benefits under section 80C and enjoy the benefits of section 24 as well. A similar benefit of 1.5 lakh rupees applies in this scenario, and 2 lakh rupees benefit under the loss from property clause. Moreover, the additional benefits on your rental income from your second property will automatically apply to your second home loan.
Whenever you buy a second home from a home loan, it is best to rent your property out to enjoy additional tax benefits. These benefits are applied to both conditions, whether you already have a loan or not. Make sure to take guidance from your financial advisor too.