Nowadays, buying or owning more than one house has become common. Buying a second home can be an exciting event and a huge decision to make. Along with the capital requirements, buying a home comes along with plenty of emotional attachment. However, it is also considered to be one of the best investments. This is the reason why many go ahead with buying a second home. With rental income, you can diversify your investment portfolio and reap rewards. Before buying a second home, it is natural to have many questions. You may wonder if you avail of a second home and if you would be eligible for tax benefits on this home loan.
We’ve got good news for you. While buying your second, you can definitely opt for a second home loan In addition, you can also avail of tax benefits while doing so. In this article, we have a detailed view of the tax benefits that you are eligible for while availing of a second home loan.
With the numerous tax benefits that you get with a second home loan, you can cut costs to a great extent. Let us have a look at the key tax benefits you can get.
Typically, a home loan consists of the interest component and the principal component. You can avail of tax benefits on both these components. According to Section 80C of the Income Tax Act, you can experience tax benefits on your principal amount up to Rs. 1.5 Lakhs. This deduction will be applicable even on your second home loan irrespective of whether the house is rented or self-occupied. This deduction under Section 80C also includes other investments such as ELSS, PPF, etc.
To further understand the tax benefits on second home loans, it is key to note that there are two types of house property - Let-Out Property and Self-Occupied Property. In the case of a self-occupied property, the homeowner uses their own property. With a let-out property, the homeowner rents their property. Depending on the nature of the property, you can identify how much tax benefits you can experience.
According to Section 23, the gross annual income that you receive from it will be considered to be NIL in case your property is self-occupied. After the tax deductions are applied to your principal component, you will have to consider the deductions applied to your interest component. When it comes to the deductions on the interest component, Section 24 of the Income Tax Act applies. According to this Section, you can claim a maximum deduction of Rs. 2 Lakhs on the repayment that is made towards the interest component.
In case your first home is self-occupied and your second home is vacant, you can avail of a deduction of up to Rs. 2 Lakhs. However, there can be cases where your first home is self-occupied and your second home is one rent. In such scenarios, you can avail of a total standard deduction of 30 per cent on the interest paid and the municipal taxes paid. In addition, you also have the option to claim tax benefits up to Rs. 2 Lakhs on other sources of income. If you experience any loss over Rs. 2 Lakhs, it can be carried over for the next 8 years of assessment.
You will be eligible for home loan benefits while buying a second home. Tax benefits of second home loan are considered to be helpful as they can help you save finances. If you are planning to buy a second home and are looking to opt for a home loan, Piramal Capital Housing and Finance is the best place to go. You can avail of home loans with many benefits such as quick loan sanctions.