18 Jul, 2012 10:57p.m.

Advantages of second home loan : Unlimited IT exemption on Interest paid

Its a well understood fact that the investment in a house is one of the investments that brings in high returns. In addition to the appreciation on the real estate value, the income tax exemption benefits brought in by the home loan is also considerable. Many of us might have availed the home loan considering this benefit.

A home loan for the purchase of residential unit is eligible for tax exemption under Section 80C of the Income Tax Act.
You will enjoy tax-exemptions via following two ways
  • Up to Rs 1 Lakh for Principal Repayment that can be claimed under section 80 C
  • Up to Rs. 1.5 Lakh on Interest Repayment, that will be deducted from your taxable income under Section 24.

But the home loan for a second home is to bring much higher benefits. There is no exemption for repayments on the principal element. However the interest paid on the second home loan is exempt from taxable income and the advantage is that there is no upper cap on the amount that is exempted. Considering the existing market price of the residential properties, the gains achieved will be considerable.

In case more than one borrowers are availing the loan, all the joint borrowers are eligible for exemption on the interest element individually. Also the interest paid during the period of construction of the second home is also exempt from taxation up to 20 per cent of the total interest paid during this period.

If the second house is not self-occupied house and you have to pay taxes for rental income from it. This income is calculated after deducting up to 30% on maintenance expenses and property taxes. 

The new DTC Provisions

Despite some initial reservations on this issue the revised draft of the Direct Tax Code has maintained all the present benefits of the home loan payers in its provisions and it is unlikely that the benefits being offered will be withdrawn anytime soon.

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