Can I claim income tax benefit on a second home loan?

Real estate investments have become lucrative in recent years, igniting renewed interest among buyers and investors. However, would a buyer investing in a second home be able to enjoy the same tax benefits as they did on the first home loan? Housing News tries to find out the answer.

Who can claim a tax deduction on a second home loan?

Only those taxpayers who have opted for the Old Tax Regime can claim tax benefits on second home loan repayment. Under the New Tax Regime, no such benefits are allowed.

What benefits can be claimed on a second home loan?

Borrowers can claim the following tax benefits on second home loan repayment:

Section 80: Rs 1.5 lakh tax deduction on principal payment

Available for: Property construction or purchase

Can be claimed for: Self-occupied, rented, deemed-to-be-rented properties

A borrower is allowed to claim an annual tax deduction of up to Rs 1.5 lakh against home loan principal component payment under Section 80C.

Terms and conditions

1. If you have taken a loan to build a home, the construction work should be completed within 5 years of taking the home loan.
2. The house should not be sold within 5 years of possession. In case that happens, any deductions claimed will be added back to the income and taxed accordingly in the assessment year in which the sale takes place.
3. Deductions under Section 80C are offered on a payment basis.

Section 24B: Rs 2 lakh tax deduction on interest payment

Available for: Property construction or purchase

Can be claimed for: Self-occupied, rented, deemed-to-be-rented properties

Under Section 24B, a borrower can claim an annual tax deduction of Rs 2 lakh on the second home loan on interest payment for self-acquired property. In case the property is given on rent or deemed to be let out, the entire interest amount is waived off as a deduction. However, you can only offset losses of up to Rs 2 lakh under the ‘income from housing property’ head.

Terms and conditions

1. If you have taken a loan to build a home, the construction work should be completed within 5 years of taking the home loan.
2. The deduction is capped at Rs 30,000 if the house is not constructed within 5 years of taking the loan. This period starts from the end of the financial year in which the loan is borrowed.
3. The deduction can be claimed from the year in which the construction is completed.
4. The loan should have been taken after April 1, 1999.
5. Deductions are offered on an accrual basis.

tax benefits are calculated per person and not per property. This means that if the second home loan is jointly taken, each co-borrower can claim a tax deduction of the same amount.

See also: Home loan tax benefits in 2024

How to claim tax benefits on a second home loan?

To claim a tax benefit on your second home loan, follow these steps:

• Make sure the home loan is applied and granted under your name. In case you are the owner but the loan is sanctioned in your spouse’s name, you will not be able to claim the tax benefits.
• Keep the paperwork handy. Aside from an interest certificate from your bank, you will have to provide the following documents/details to claim a tax deduction on your second home loan:
  • Property and ownership details:
    • House type
    • Property value
    • Loan amount
    • Loan start
    • date
    • Year of acquisition
    • Year of completion
    • Year of possession
    • Whether you are a co-owner
    • Rental income, minus municipal tax
    • Net asset value
    • TDS deducted
    • Income/loss from house property
    • Property address
    • City
    • State
    • Pin code
    • Phone
    • Bank details:
      • Bank’s address
      • Bank’s PAN
      • Bank’s category: Financial institution/other/employer

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