Tax Savings

Tax Benefits on Second Home Loan


Principal and interest are the two components of a mortgage payment. By paying off the loan’s principal, you can claim a deduction of up to Rs 1.5 lakh under section 80C. The maximum allowable deduction for principal payments is Rs 1.5 lakh if you have one or two mortgages.

It is important to remember that the 80C deduction can be used for investments like an ELSS, a life PPF, and so on. As a bonus, it doesn’t matter if the homeowners intend to live in or rent out their properties. 

How To Calculate Interest Payment Tax Credit?

Remember that the interest you pay on your second home loan is tax deductible. Tax deductions can be claimed on interest payments, thanks to Section 24. Mortgage interest payments up to Rs 2 lakh are tax deductible for single homeowners. 

One house is occupied by the owner, while the other sits empty

By definition, the second property is not a rental under the current tax regulations. Therefore, we shall treat both houses as though they are occupied. Interest on both properties cannot be more than 2,000,000 rupees.

The owner lives in the first house while renting out the second

Second rental income must be recorded. After that point, you can deduct the 30% standard deduction plus any home loan interest (up to a certain maximum) and any local taxes you pay. A limit of Rs 2 lakh can be subtracted from your total income. Any losses above Rs 2 lakh might be carried over to the next eight assessment years.

The income above tax benefits is calculated individually rather than on a property basis. Applying for a joint mortgage on a second home loan might be beneficial since each owner can deduct a portion of the interest and principal payments from their taxable income.

Procedures for Claiming a Tax Break on Your Mortgage Interest

First and second mortgages should ideally be in your name from the beginning. Before applying for a combined home loan, you should verify your status in both properties.

Please provide your employer with a copy of the home loan Interest Certificate so they can make appropriate TDS adjustments. If you don’t, the government will continue withholding funds from your salary without compensating you. In some cases, a letter of home loan approval is also required.

How To Enjoy Tax Benefits On Home Loans?

Buying a second home loan might be motivated by maintaining ties to one’s hometown, wanting a place to escape on vacation, or hoping to generate rental income. If you and your family are looking to start a new tradition, now would be a good time to consider applying for a second mortgage, given the favourable tax climate.

Mortgage subsidies for second homes

Those who own several properties might take advantage of some tax breaks. If you have previously paid off your mortgage, you will not be eligible for this benefit. Let’s take a closer look at each of these benefits.

The process of relocating to your second home

Only one of your residences can have a zero annual value and qualify as a self-occupied property following the Income Tax Act. The second location’s earnings will be classified as “Income from House Property” because they result from renting or trading the home loan.

Examining the financial impact of vacant land on taxes

If you have more than one “Self Occupied Property,” you can choose which one to use as your principal residence. Any surviving residences shall be considered “Deemed Let-Out Property” under the Act (DLOP). If one of your properties is a DLOP, you must treat it as a rental property. A potential profit from renting out a property would thus be taxed. There is a 30% rebate on routine maintenance and repairs.

To be a retirement or vacation residence

Since an owner-occupied property can only be used to their advantage in one other property, the assessed yearly rent will be used as the taxable value.

A second residence that is rented or leased.

The real rent you collect from a second home loan you rent or lease out may be taxed.

Making use of a tax break offered by your city or district

Taxpayers can claim a deduction for money given to local governments (often municipalities) when completing their returns for that year. When determining these taxes, there is no differentiation between the current fiscal year and the previous fiscal year.

Maintenance expenses may be deducted if they meet certain criteria

It’s also possible to make a down payment of 30% of the home’s projected annual gain because it’s wise to put some cash away for maintenance, upgrades, and repairs that come up unexpectedly. Remember that the 30% reduction is a fixed amount, not a percentage of your total. However much money you may have to spend, just 30% of it will be deductible.

Taking into consideration the interest rate

No matter whether your second house is regarded to be partially or fully rented out, the actual amount of mortgage interest you pay on the home loan is deductible. However, the highest annual mortgage interest rate is restricted at INR 1.5 lacs (rising to INR 2 lacs in AY 2015-2016) and only under particular circumstances for a residence that would be utilised entirely by the borrower.

Factors To Keep In Mind Before Buying A Second Home

Determine if you’re buying for tax breaks, investment, or retirement purposes, then familiarise yourself with the area.

You should assess the home’s true rentability if you plan to take a home loan or lease it. Also, check with the residents’ organisation or neighbourhood watch to ensure the area lives up to the renters’ expectations.

Get a ballpark figure for any expenditures. Are you still making payments on your initial home loan? The next step is to verify that you are entitled to the money you’ve sought. Loan rate requirements for repeat buyers may differ from those for first-time buyers.

The Bottom Line

To open an account, some banks require these customers to put down a larger quantity of money. Make sure you can comfortably afford either choice and get more information on the Piramal Finance website.