Buying a house is always a big decision, be it your first house or your second. With the growing needs and demands of people, there are no restrictions on the number of houses one can own. And to make things easier for one, home loans always come to the rescue. Avail the option of tax benefit on home loan and gain maxim advantage.
Home loans are utilized for buying, constructing, renovating, or remodeling a house property. Nowadays, owning multiple properties has become more convenient because you can always avail of tax-benefits on your second home.
While opting for your second home loan, there are certain things you should consider and keep in mind. Under Article 80C and Section 24 of the Indian Income Tax Act, 1961, an individual is entitled to claim tax benefits with respect to the interest paid on money borrowed as a home loan. The tax laws also allow you to claim the tax benefits concerning repayment of the principal amount borrowed as a home loan to cater to your housing needs.
Additionally, another important criterion to avail tax benefits depends on the amount of home loan available to you for all the properties taken together. It shall depend on various factors like your earnings, age, and ability to pay back the loan.
When it comes to availing a home loan for the first home, you are already entitled to avail tax benefits under Section 80C up to rupees 1.5 lakh on the principal repayment and up to 2 lakh on the interest paid under Section 24 of the Indian Income Tax Act. However, when it comes to the second home, there are additional benefits. According to the new tax regime, if you already have one home loan running and you are already availing of the tax benefits under Section 80C and Section 24, you will not be able to claim these benefits when you buy a second home as you cannot exceed the tax benefit of 1.5 lakh. Now the question arises if these benefits are ruled out, and you are no longer eligible for a tax deduction, how can you avail of tax benefits on your second home. Fret not, because you can still avail tax benefits and take advantage of these benefits when you have rental income.
To understand how to claim tax benefits and how your house property’s taxability works, you must first know that there are two categories of housing properties. The first category is Self-Occupied Property (SOP), and the second category is Let-Out Property. Self-Occupied property is mostly the first house property in which the taxpayer is residing at the given moment. In other terms, it is meant for his/her own residential purposes.
On the other hand, Let-Out Property is meant to rent it out to potential tenants and earn a rental income out of it. Under the tax laws or banking laws, you can actually avail tax-benefits on your second home, and this is how you can do so.
For instance, if a person has taken a home loan to buy his second house property worth 1 crore. He has rented out the property, getting an annual rental income of approximately 3 to 4 lakhs, one-third becoming tax-free. You can instead use this amount for other purposes like renovation, construction, maintenance, and so on. Once you own the second house property and have a fixed plan to rent out the property, all you need to do is, declare the rental income you receive annually while filing your income tax returns for the particular year. Additionally, even if you do not rent out the other house property for which you took the second home loan, it will still be considered as ‘deemed to be let out’ and taxed accordingly.
After you have rented out your second house, the rental amount received by you annually will be taken as your let-out house property’s gross annual value. After this calculation has been made, you will be allowed to deduct the standard deduction of 30 percent and deduct the interest paid on the home loan taken for the property you are gaining rental income out of. Further, it is also important for you to understand that the tax benefits under the tax laws or banking laws are available based on per person and not per property. The same property can be co-owned by two different people. Perhaps the husband and wife can jointly own the same property and avail a home loan with the same proportion just so that both can avail equal tax benefits. It will further allow you to avail of additional tax benefits on your second home loan.
