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Thursday, September 15, 2022

How You Can Avail Tax Benefit On Second Home Loan

 Home loan interest rates are at their affordable best with RBI’s decision to keep policy rates unchanged. This has increased the demand for this financial product, and enabled individuals to get a second home loan.

Besides affordable rates, the Indian Government also extends substantial tax benefits on second home loans, which paves way for significant savings during the repayment stage.

What are the sections that allow Tax Benefits on a Second Home Loan?

The IT Act of India allows a home loan borrower to avail tax deductions on interest payable and principal amount. This is an efficient way to make healthy savings on repayments. However, a potential borrower should always choose a reliable lender levying a current home loan interest rate to leverage the benefit scale.

Nevertheless, here are the sections that allow tax benefit on a second home loan –

  1. Deduction Under Section 24

Home loan borrowers can claim tax benefits on the interest repayment under section 24 of the Income Tax Act. This section allows individuals to claim deductions upto Rs.2 lakh on the interest component during a financial year.

However, there are certain restrictions, such as the interest component for both houses should not exceed Rs.2 lakh in a year.

Additionally, two conditions specify the tax benefit on second home loan –

  • One property is self-occupied while the second one is rented- One can gain a deduction of upto 30% on the municipal tax payment and interest repayment on a home loan. 

However, individuals need to declare the rent earned from the second property to claim this deduction. They can also claim tax benefits upto Rs.2 lakhs on other income sources.

  • One property is self-occupied, and the second one is vacant- The new regulations state that a second property can’t be considered let out. Hence both the houses will be regarded as self-occupied. 

  1. Deduction Under Section 80C

Section 80C of the Income Tax Act of 1961 allows tax benefit on home loan repayments provided they are self-occupied properties. This section allows a deduction of up to Rs.1.5 lakh on the principal component.

This will be applicable for both the first and second houses. However, one must know that a second property that remains occupied by tenants or remain empty will be considered self-occupied. This deduction also covers the investments such as ELSS, PPF, registration charges, stamp duty payment, etc.

These sections allow home loan borrowers to make savings on the total borrowing. It is recommended to learn about the mentioned sections and the new updates in detail before filling an online home loan application form.

This will help them to make an informed borrowing decision. Moreover, an individual can easily streamline income tax filing.

Since borrowing is a crucial decision that requires a planned approach, individuals must check factors related to a home loan beforehand. 

What are the Factors to check before Availing of a Home Loan?

  1. Eligibility

Potential borrowers need to fulfil the mentioned eligibility criteria for home loan to make a successful application. These requirements usually vary from lender to lender. Here are some common parameters –

For salaried -

  • An individual should have an Indian citizenship

  • They must have a minimum of three years of work experience

  • Applicants must be aged between 23 to 62 years

For self-employed applicants -

  • An applicant needs to maintain a lender-specified income range 

  • Individuals should fall in the age group of 25 to 70 years 

  • Applicants need to have Indian citizenship 

  • They have to prove five years of business continuity

  1. Documentation

The lender assesses an applicant’s repayment capability and authenticity by assessing the submitted documents. These requirements include-

  • KYC papers

  • Identity and address proof

  • Papers related to a property such as a sale deed, ITR, etc

  • Salary slips and bank statement

The mentioned sections allow the tax benefit of a second home loan and the primary one. It is recommended that home loan borrowers should keep a tab over the new updates on the official website and the last date to claim the tax rebates.

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