Income Tax Implication On Home Loan For Second House
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6 Comments
Tarun is planning to buy a second house worth Rs 45 lakh with a home loan of Rs 36 lakh. He
already has a flat that is worth Rs 40 lakh for which he has taken a loan of Rs 32 lakh three years ago. His income is Rs 1.2 lakh a month. He is now
scouting for another home loan. He is also not clear about the tax implication of the two home loans.He is not clear about the tax implication of the two home loans.
Analysis
First home Home loan Rs 32 lakh Current year Third Interest rate 8.25 per cent Interest amount to be paid in the current year Rs. 2.50 lakh Principal amount to be paid in the current year Rs. 77, 000 Second home Home loan Rs 36 lakh Current year First Interest rate 8.25 per cent Interest amount to be paid in the current year Rs 2.94 lakh Principal amount to be paid in the current year Rs 73,800 With regard to his first home loan for Rs 32 lakh, he is entitled to Rs 1. 1.5 lakh of maximum tax deduction on
the interest paid under Section 24 (b), and Rs 2. 1 lakh of maximum tax deduction on the principal paid under Section 80 (c).
So, he can avail of deduction of Rs. 1.50 lakh against the interest amount of Rs. 2.50 lakh to be paid and Rs
77,000 against the principal amount of Rs 77,000. But since he is planning to take a second home loan for his second house, the calculation of his tax deduction will be something as described below.Under section 80 C, one gets maximum deduction of Rs. 1 lakh for principal amount paid against a home
loan, and this is valid in case of multiple property too. So, in Tarun's case it will work out as follows:Principal paid against the first home loan Rs 77,000 Principal paid against the second home loan Rs 73,800 Total principal paid Rs 150,800 Tax deduction under 80 C Rs. 1 lakh Tax deduction on Interest paid
For the sake of calculation, one is allowed to consider one of the two houses as self-occupied and the other
as rented, even if an individual is using both of them for his own use.First home (If treated as self occupied) Interest paid in third year Rs 2.50 lakh Tax deduction on interest paid
If treated as notionally rented out : Net Income from rentRs 1.50 lakh Annual Rent
(assuming a rent of 1.5 lakh pm)1.80 lakh Less: Standard Deduction at 30 per cent of rent Rs 54,000 Net Outflow (Rs 1.24 lakh) Loss of Income Second home (If treated as self occupied) Interest paid in first year Rs 2.94 lakh Tax deduction as per 80 C
If treated as notionally rented out : Net Income from rentRs. 1.50 lakh Annual Rent
(assuming a rent of 1.5 lakh pm)Rs 1.44 lakh Less: Standard Deduction at 30 per cent of rent Rs 43,200 Less: Interest paid Rs 2.94 lakh Net Outflow (Rs 193,200) Loss of Income Net outflow is calculated by deducting the standard deduction from the annual rent and then further deducting the remainder from the interest
paidOption 1 House one for self Rs 1.50 lakh House two on rent Rs 1,93,200 Total Outflow Rs 3,43,200 Option 2 House one on rent Rs 1.24 lakh House two for self Rs 1.50 lakh Total Outflow Rs 2.74 lakh Therefore, option 1 is the better optionas he will get tax deduction of around Rs. 3,43,200 from his income.
Summary
- Tax deduction on Principle paid – Rs. 1 lakh
- Tax deduction on interest paid – Rs. 3,43,200
- He gets a total of Rs 4,43,200 as deduction
Published on May 6, 2010 · Filed under: Home Loan Case Studies; Tagged as: fixed cum floating interest rate, home loan, income tax benefit, investment plan, savings
6 Responses to “Income Tax Implication On Home Loan For Second House”
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punks said on July 6th, 2010 at 3:40 pm
indepth calculation is good…wonder if i could really save that amt on my investemnt in home??
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Dharamendra said on July 6th, 2010 at 3:45 pm
I knew tax benefits on home loan but neat and stepwise calculations have provided a solid impetus on the saving money thru tax exemptions.
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Anand said on September 23rd, 2010 at 12:04 pm
Dear Team,
Thank you for the details.I have a question as given below. Can you please advise?
I take a home loan and get the possession of the home. I stay in a rented house and rent my house. Can I claim a loss from property as : Income from rented house – interest paid through EMI and a get the tax deduction?
If yes, can the house be rent to your spouse, parents? and I can show an agreement of renting the house to them?
Thanks
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shwetabh said on September 23rd, 2010 at 1:14 pm
Hello,
You can get IT benefit of the difference between the EMI expense and Rent income upto Rs. 1.5 lacs.
You can rent it to your parents however renting it to your wife may create HRA related discrepancies as only one should get HRA for a married couple.
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N R DABHI said on March 27th, 2012 at 2:59 pm
Dear Sir, I have two houses, one is in NADIAD and second in Ahmedabad. I live in Nadiad, and I have no loan on nadiad house,now I take new house in Ahmedabad take bank loan 36 lakhs,
qustion is how I get income tax benifit on my second new house, -
N R DABHI said on March 31st, 2012 at 12:47 pm
Dear Sir, I have two houses, one is in NADIAD and second in Ahmedabad. I live in Nadiad, and I have no loan on nadiad house,now I take new house in Ahmedabad take bank loan 36 lakhs,
qustion is how I get income tax benifit on my second new house,
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