All You Need To Know About Tax Benefits On Second Home Loan

Buying a home brings a tremendous sense of fulfilment. Especially in India, this occasion is celebrated with great joy and pride. Many banks offer low interest and affordable Home Loans and help individuals buy their dream home with much ease. 

With the rising demand in the real estate market, many people are investing in more than one property. This is when a second Home Loan can come in handy. It offers solid financial security and comes with several tax benefits. 

In this article, let us understand the tax benefits on Second Home Loan in detail. 

What are the income tax benefits on Second Home Loan? 

The repayment of a Home Loan has two important aspects – the principal amount and the interest paid. As per Section 80C of the Indian Income Tax Act, you can claim a maximum tax deduction of INR 1.5 Lakh on the principal amount repayment. 

Even when you own a second home, the maximum tax deduction you can claim on your Home Loan principal amount continues to remain INR 1.5 Lakh. 

The deduction under Section 80C also includes tax exemptions claims from investments such as: 

  • Public Provident Fund (PPF)

  • Equity Linked Savings Scheme (ELSS) 

Note: Deduction under Section 80C can be used to claim tax exemption for more than one property. Irrespective of either it is self-occupied or rented. 

You can also earn a deduction on Home Loan Interest under Section 80EE. Click to read more.

What are 2nd Home Loan Tax Benefits on the interest paid? 

Before you dive into the details of tax benefits levied on the interest paid on your Home Loan, it is crucial to know the status of your property. There are two types of properties:

  • Self-Occupied Property (SOP): Property occupied by the owner, aka your residence 

  • Let-Out Property (LOP): Property offered on rent

Tax benefits offered on both types are different. 

Tax benefit – When the second home is vacant 

If your first home is occupied and the second home is vacant, both will be considered self-occupied. You cannot declare the second empty house to be on rent for tax claim. You can claim a tax benefit of up to INR 2 Lakh on the interest repayment of your Second Home Loan. 

Note: You cannot claim tax benefits on properties that are under construction. 

  • Tax Benefit – When the second home is rented 

When your second home is on rent, you can claim tax benefit on the interest paid easily by declaring your rental income during the income tax filing every financial year. The actual rental income will be considered as the gross net value of the property. 

As per Section 24, you can claim a tax benefit of 30% on your rental income, interest paid on loan, and the municipal taxes payments. 

However, if the net amount exceeds after the tax deduction of the expenses, it will be added to your total gross income. Once this happens, you will be eligible to pay taxes according to the income tax slab you fall under. 

Second-home tax benefits put you in a much secure position as compared to a new Home Loan altogether. As it allows you to invest in your dream home, at the same time, it does not overburden you with heavy tax implications. Before you decide to invest in a new home, check how beneficial the deal is for you using the Second Home Loan tax benefit calculator. It is a simple tool that provides accurate results in a few clicks. You may also seek professional guidance while opting for this loan. The received advice will help you make a well-informed decision. 

Apply for a Home Loan and buy the home you have always been dreaming of with HDFC Bank! Click here to get started

*Terms and conditions apply. Home Loan at the sole discretion of HDFC Bank limited. Loan disbursal is subject to documentation and verification as per Banks requirement. ​​​​​​​