Tax Benefit On Home Loans And Economics Of Purchasing Second House

All of us have a dream of owning  a house, no matter how small or big it may be. But one should not think of purchasing a house being just an emotional decision, in reality, it is one of the safest bet for your investments and a very good avenue for reducing income tax liability. Under the Income Tax Act, 1961 All Resident Indians are eligible for certain tax benefits on some portion of principal and interest components of their Home Loans.

There are two ways, in which you will be benefited, when you purchase a house and take a home loan. First one being Tax Exemptions and second one being the Usually High-Returns on your Investment made against your house, simply because of ever-rising property prices. With the recession all but over, housing sector is going to witness yet another boom. So if you have not bought a house yet, this could very well be your shot at redemption 🙂

Tax Benefits on First Home Loan:

If you purchase your first house, by-default it is taken as self-occupied. You will enjoy tax-exemptions via following two ways

  • Up to Rs 1 Lakh for Principal Repayment that can be claimed under section 80 C
  • Up to Rs. 1.5 Lakh on Interest Repayment, that will be deducted from your taxable income under Section 24.

Interest repayment comes under the heading of ‘Income From House Property‘ and is taken as a loss or negative amount.

Tax Benefit On Second Home Loan:

If your disposable income is high enough to afford a second home, then you can enjoy even more tax-benefits than the one you did on your first home !! Even though, you may already have a home loan running, banks are generally more than willing to finance your second house as well, provided your income is high enough to convince them about your loan-repayment-capability. Most of the people either let out their second home for rental income or make it the place for other family members.

Second house is not taken as a self-occupied house and you have to pay taxes for rental income from it. This income is calculated after deducting up to 30% on maintenance expenses and property taxes. You will again enjoy tax-exemptions via following two ways

  • Up to 1 Lakh for Principal Repayment under section 80 C
  • Unlimited Exemption on Interest Repayment, albeit with a difference. Loss from house property is calculated as Annual Interest Repayments minus the Adjusted Rental Income and this differential amount is  eligible for tax-benefits.

As you can see, there are more tax-incentives in store, when you go about buying the second house. But you should have enough money in order to afford a second home. Apart from owning a second house and earning a rental income, you also get more and more tax-exemptions. Now this is what we call Sone Pe Suhaga 🙂 Isn’t it ??

So…..when are you planning to buy a house ?? your first one, may be your second one 😉

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2 responses to “Tax Benefit On Home Loans And Economics Of Purchasing Second House

  1. Pl check whether the 1 lac principal repayment benefit is available on the on the second house..!!

    • Principal repayment is an investment under section 80C and it can be claimed only against the first house loan.However you can claim interest benefit on you second house loan without any limits.

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