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21 MAY, 2021
Buying a home is an expensive affair and therefore, most home buyers avail a home loan to finance their property purchase. The good news is that you can reduce your overall cost of borrowing by making the most of the tax benefits on home loans. Therefore, it becomes all the more important to learn about tax benefits on home loan.
Tax Benefits on Home Loan
As a taxpayer, you can save on taxes by claiming deductions from the taxable income. If you have a home loan, there are some special provisions for you to save tax. Under Section 80C of the Income Tax Act, 1961, you can claim a maximum deduction of Rs 1.5 lakh on the principal repayment of home loan. Whereas, Under Section 24(b) of the Income Tax Act, 1961, the maximum deduction on home loan interest repayment is restricted to Rs 2 lakh.
While many home loan borrowers are usually aware of tax benefits in case of only one property, very few know about tax benefits on a second home loan. Below, we are going to guide you through the tax benefits that can be availed on second home loan. Read on to learn about the same:
Tax Benefits on Home Loan for Second Property
To understand the taxability on second home loan, it’s essential to learn what is a Self-Occupied Property and Let-Out Property. A self-occupied property is the one in which the borrower resides, whereas the other property is considered as let-out property or a rented one. Even if the home loan borrower doesn’t rent out his second property, it will still be considered as ‘deemed to be let out’ and taxed accordingly.
Due to the limit of Rs 1.5 lakh for deduction claimed for principal repayment, you might not be able to avail this benefit on your second home loan. However, you can still enjoy tax benefits on the interest component. Under Section 24B of the Income Tax Act, 1961, you can claim a deduction for interest payable on your second home loan.
Earlier, in case of let-out property, the interest payable was fully deductible. That means if the interest pay-out on the second home loan was higher than the rent received, the remaining portion could be adjusted against your other income. However, now a limit of Rs 2 lakh has been levied on such adjustment.
Having said that, the provisions made in the interim budget 2019-2020 allowed homebuyers to claim two houses as self-occupied properties. However, it must be noted that the deduction concerning home loan interest shall still continue to be Rs 2 lakhs for both the properties taken together. This will be extremely beneficial for individuals who own a property in their native place or whose parents stay in the other property owned by them.
Effectively, you can have two self-occupied properties now and can also claim the tax benefits for both if you are repaying home loans for one or for both of them, subject to the upper limit of deductions. Now that you are well aware of tax benefits on second home loan, ensure to make the most of it while purchasing a second property for yourself. You can easily avail a home loan at an attractive rate with Kotak Mahindra Bank. Make sure to check your loan eligibility before applying for a home loan. Also, you can get an estimate of your home loan EMI with the help of an online EMI calculator. Settle for an EMI and loan tenure only after evaluating your repayment capacity.
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