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Second Home Loan Taxation in India

All those with higher taxable income in India; can go for second home as it is a good source to save tax. One must have a look at following parameters to know tax implications for second home.

If the second house is rented out, you get two deductions on income accrued from it namely on property tax paid and interest payout. However in case the second property is not rented and in that scenario, the municipal rate of the area will be considered to be rent. After this deduction the income get taxed.
The rest income from second house after considering property tax paid and interest payout will be added to your income from other sources and taxed.

In case of a loss after property tax and interest payout, taxpayer can, if he wishes to carry it forward to offset it against gains from only a housing property any time in the next 8 years. However if you have made gains in that year; the loss can be offset against that gain.

In case of a home loan taken for a self-occupied property, the principal amount repaid up to Rs 1 lakh qualifies for deduction under Section 80C, while up to Rs 1.5 lakh of interest paid is tax deductible under Section 24.

Second House Taxation

However, in case of a home loan for the second property, only interest payment is eligible for deduction. No tax benefit is available on the principal repayment on the second loan. However, the good part is that there is no limit on the deduction for interest payment on the second loan. Even if the second house is lying vacant, the Income Tax Department will consider that it has a rental value. The notional or deemed income (see How income is computed) will be added to your taxable income.

Whether the second house is purchased purely as an investment option or as a weekend getaway, the interest paid on a loan taken to buy it is tax-deductible. Since the interest payment is a large expense, you can add significantly to your disposable income if you can save on it.

A buyer can deduct expenses, such as municipal or property taxes actually paid, from the deemed income. Other than this, 30% of the net annual value, which is the difference between the rental income and municipal taxes, is also allowed as deduction. In case the house is rented out, 30% of the actual rent can be deducted from the taxable income, apart from deductions for local and municipal taxes. After deducting such expenses from the income that you earn from the property, if you incur a loss, you have the option to set it off as follows.
  • The current year's loss will first be set off against any other income from property. It can also be set off against other incomes, such as that from salary, business or profession and capital gains, earned in the current year.
  • If your balance continues to be in the red, you can carry forward the loss for up to eight years. However, the amount that is carried forward is only allowed to be set off against the income that is earned from a house.

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