The Covid-19 pandemic turned out to be a blessing in disguise for homebuyers. To give a boost to the drowning real-estate sector, the Reserve Bank of India made the Repo Rate the lowest it had been in the last few decades. Home loans, therefore, became the cheapest they had been in a long time. People who had been planning to buy a home got a boost to take the plunge and people who already had a home decided to buy a second one. People, therefore, often ask what are the tax benefits on second home loan or how to claim a tax break on the second home loan. Read on to know the answer.
A home loan is a huge financial commitment that has an impact on every aspect of one’s life. Home loans are repaid in the form of EMIs, which constitute a principal component and an interest component. Since home loans are a big-ticket expense, the EMIs take up a major portion of a person’s monthly income. Therefore, to provide some relief to home loan borrowers, the Government of India and the Income Tax Department offers some tax benefits on second home loans as well.
Deductions on Principal Repayment
Section 80(C) of the Income Tax Act deals with tax benefits available on the principal component repayment of the home loan. Under this section, one can claim up to a maximum of Rs.1.5 Lakh as tax deductions. So, if you have two home loans, you can claim up to a maximum of Rs.1.5 Lakh for payments made towards principal repayment of both home loans. Even if the principal repayment exceeds Rs.1.5 Lakh, you cannot claim more than the maximum tax deduction limit specified under Section 80C.
Deductions on Interest Repayment
Home loan borrowers can also claim tax deductions up to a maximum of Rs.2 Lakh on payments towards the repayment of the interest component of the home loan under Section 24(b) of the Income Tax Act. This applies to both the first as well as the second home loan. However, the total exemption that one can claim on both home loans under this section cannot exceed Rs.2 Lakh. However, to be able to claim these deductions, one must meet the following criteria.
One can claim tax deductions on both home loans under this section of the Income Tax Act only if one property is self-occupied and the other is vacant. If you are earning rental income from the second property, you must declare the rent earned as part of your taxable income. If you do so, you can claim tax deductions up to a maximum of 30% on payments made towards interest repayment and municipal tax payment.
The tax benefit of second home loans are many. However, a borrower should never buy a second house only to save taxes. Take on the responsibility of a second home loan only if you can afford to. Not being able to pay your EMIs can lend you huge trouble and also ruin your chances of availing of a second home loan when you are actually ready for it.
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