Guide For Claiming Tax Benefit On Your Second Home Loan?

Guide For Claiming Tax Benefit On Your Second Home Loan?

Since the Reserve Bank of India has decided to keep the policy rates unchnaged, the interest rate on housing loans has remained affordable. Resultantly, the demand of housing credit has amplified in recent times, significantly. Additionally, to encourage this demand further, the Central Government allows tax rebates on the home loan.

Besides your first housing credit, tax benefit of second home loan is also available to aid prospective homeowners to save on their repayment.

What are the tax benefits available on a second home loan?

Availing a home loan bounds an individual into a long term financial commitment. They are obligated to repay EMIs within a selected tenor. The IT Act allows a borrower to avail tax deductions on interest payable and principal amount to relive some of that burden.

Here are the sections that allow tax benefit of a second home loan –

Deduction under section 80C

Section 80C of the Income Tax Act of 1961 allows tax benefit on home loan repayments for self–occupied properties. Individuals can gain a deduction of up to Rs.1.5 lakh on the principal component as per the rule.

This will be applicable for both first and second property. However, one must know that a second property that remains occupied by tenants or remain empty will be considered self–occupied.

This deduction also covers the registration charges, stamp duty payment and investments such as ELSS, PPF, etc.

Deduction under section 24

A home loan borrower can also claim tax benefits on the interest paid under section 24. This section allows taxpayers to claim deductions on the interest component of upto Rs.2 lakh during a financial year.

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If an individual owns two houses, then the interest paid on both the home loans will be liable for deduction as per section 24. Such individuals must remember that total deductions on interest component for both houses should not exceed Rs.2 lakh in a year.

There are two conditions to claim the said tax benefit of a second home loan.

  • One property is self-occupied while the other is vacant- As per the new rules, the second property can’t be considered let out. Hence both the houses will be regarded as self-occupied. 
  • One property is self-occupied while the other is rented- Individuals need to declare the rent earned from the second property. One can gain a deduction of upto 30% on the municipal tax payment and interest repayment on a home loan. A taxpayer can also claim tax benefits upto Rs.2 lakhs on other income sources.

Being aware of these sections, and their advantages aid individuals to save substantially on their home loan repayments.

Furthermore, since borrowing is a crucial decision that requires a planned approach. Individuals must check important factors related to the home loan to streamline the application process.

What are the factors to check before availing a home loan?

Individuals should check the below-mentioned factors before filling an online home loan application form –

Eligibility

An individual needs to fulfill certain eligibility criteria for home loan to make an application. Some common requirements include –

For salaried-

  • They must have a minimum of three years of work experience
  • Individuals should reside in the city where a lender operates and maintain a specified income range
  • An individual must be aged between 23 to 62 years
  • Applicants should have an Indian residency. 
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For self-employed applicants –

  • Individuals need to maintain a lender-specified income range 
  • An applicant should fall in the age group of 25 to 70 years 
  • Having Indian citizenship is mandatory 
  • Applicants need to show documents proving five years of business continuity.

Interest rate

A potential borrower must compare different lending institutions and opt for the one levying affordable and current home loan interest rate. This makes the repayment structure feasible and leverages the scale of savings.

Hence, a potential borrower must check factors concerning a loan application and tax benefit of a second home loan and the primary one. This will help them to make an informed decision.

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Derrick Jones