11 MAY, 2022

There are several tax benefits that you can claim under different sections of the Income Tax Act, 1961 when you apply for a home loan. While many first-time homebuyers only buy one home for self-occupation, it’s possible that down the line, you take on another home loan to buy another property either for self-occupation or for the purpose of renting it out. In such a case, you may wonder how you can claim the home loan tax benefits on both the loans and if that is even possible. It is possible but there are certain terms. Here is everything you need to know about availing home loan tax benefits for both self-occupied and let out properties:

  • There is no restriction on the number of houses you want to buy and the number of home loans you can take. The only caveat is that your income should be sufficient to service all your home loans.

  • In India, an individual is allowed to claim a maximum of two houses as self-occupied for tax purposes. In case you use more than two properties for self-occupation, you need to pick any two of them as self-occupied. The remaining are going to be treated as let out properties even if you have not actually let them out.

  • The tax benefits for self-occupied properties and let out properties differ. For self-occupied properties, you can claim a tax deduction on the interest paid towards your home loan up to Rs 2 lakh each year under section 24b. This limit of Rs 2 lakh is aggregate for both self-occupied properties.

  • For the property that is let out or deemed to be let out, there is no limit for interest deduction under section 24b. You can claim full interest paid as a deduction against your rental income. However, it’s essential to note that the loss under house property income is only allowed to be set against rental income up to Rs 2 lakh every year and the excess, if any, will be carried forward and set off over the next eight years against income from house property.

  • The section 80C benefit that allows you to claim a tax deduction for the home loan principal repayment is limited to Rs 1.5 lakh a year irrespective of how many home loans you have. In fact, this limit is the aggregate limit for all the section 80C eligible items and not just a home loan.

You can use a home loan tax benefit calculator to get an idea of how much tax you can save when you apply for a home loan. A home loan tax saving calculator uses inputs such as your annual income, investments, loan amount, etc., to give you an estimate of the amount of tax that you can save. This estimate helps give you a fair idea in the beginning of your home loan application process of how your home loan cost can be brought down. However, you should also additionally consult your financial advisor to understand the precise amount of money you can save on your taxable income when you apply for a home loan.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.