A house is not just a place to live, it is a home where one lives with their loved ones. And for most people, buying that first house with their own money will always hold a special value. Real Estate also serves as a great place for investment. But what if a person can make an additional investment and save tax at the same time?
Most people in India are unaware that they can avail of income tax benefits on a second home loan. In the Budget for 2019-20, the government introduced several changes to the Income Tax Act that made it possible for the country’s citizens to get a tax rebate on second home loans.
Earlier, the person could avail of such a rebate on only one home loan. Now, they can avail of income tax rebates on second home loans as well.
What are the tax benefits of a second home loan?
People who own two homes are eligible to avail of a wide range of benefits on their loans. With the changes after Budget 2019-20, both houses can be treated as
When a person buys a second house, one of the two houses will be considered to be a “self-occupied” home. Its annual value will be deemed to be zero.
- Income Tax Act
The other house will be treated as a rental property and speculative rent will be taxed as per law as the “income from house property”.
On a self-occupied house, a person can avail of a tax benefit of up to Rs 2 lakh on the interest payment of their loan under Section 24(b) of the Income-tax Act.
- Deemed Let-out Property
The other house, which is not “Self-occupied” will be considered a “Deemed let out property”. A speculative annual rent will be included in the person’s taxable income, but the taxpayer is allowed to get a refund of 30 percent for the upkeep of the house.
On this let-out property, a person can claim the full interest paid amount as a tax benefit on a second home loan under Section 24(b) of the Income Tax Act.
- Registration and Stamp Duty
Under Section 80C of the Act, while buying a second house, a person can get a rebate of Rs 1.5 lakh on the principal loan amount, including registration fees and stamp duty.
Benefits of construction
If the second home for which the loan is availed is under construction, 20% of the interest on the loan is eligible for deductions for the first five years. Also, 30% of the second house’s yearly appreciated value is allowed to be deducted from taxable income. It is considered to be for maintenance and repair.
Procedure to Claim Home Loan Tax Benefits
First, avail of a loan from a bank or financial services company like Tata Capital. But make sure that both loans are registered under one name. Two home loans must not belong to different people.
Calculate the tax benefit using the second home loan tax benefit calculator available on the website of several banks. This helps in knowing the exact quantum of benefits and saves time and energy, negating future hassle.
Now, the home loan interest certificate must be submitted to the employer to adjust the tax deducted at source (TDS). If this is not done, the taxpayer will have to pay regular TDS without any benefits and rebates.
Or, if the certificate is not submitted, the tax benefit on the second home loan will have to be availed from the income tax return at the end of the financial year.
Things to keep in mind before buying a second house
Before buying a second house, one must ensure that they know well about the neighbours and neighbourhood. It must not be forgotten that apart from the tax benefits, the house is also an investment. It is always to know more about the conditions and details before investing.
The buyers must know the house’s actual rent potential. If a person intends to rent or lease out a house, they must be able to get a reasonable income from it. It must be made sure that the location has all the required facilities and amenities. Information can also be sought from the Residents’ Welfare Organisations (RWAs) and shopkeepers.
Check all the eligibility criteria. It is of utmost importance because buying a house is a big financial commitment. A person must make sure that they are eligible for a second house loan and that they fit in for the income tax benefit on the second home loan.
Also, the second home loan tax benefit calculator must be used to see if there is a considerable benefit in going ahead or not. Or the person can also visit their trusted friends who are professionals in the field of tax and seek their advice.
Go to the bank or the financial services company’s website. The terms and conditions must be read well, and the interest rates must be checked. Often, the interest charged on the second home loan is different from the first home loan.
It is always prudent to opt for ways to get a tax rebate. Buying a second house is a good way to save income tax. With the changes in the rule after the Budget 2019-20, buying a second home has become highly beneficial.
Tata Capital offers home loans up to Rs 5 crore at interest rates as low as 8.6% per annum. The loan packages are customized depending on whether the house is being purchased or constructed.
With minimum documentation, quick processing, and approval, people can now avail of home loans with great ease and convenience with Tata Capital.
It also offers a loan tenure of up to 30 years so that the EMIs fit under the household budget of the loan taker.