5 MinsJan 17, 2022
Today, with growing aspirations and families, many are looking at buying their second home. And now is perhaps the best time given that residential prices have corrected since the peak amid the COVID-19 pandemic. Plus, many builders are offering
benefits such as free parking space, free home appliances, waiver of stamp duty charges, etc. Also, a Home Loan for your second house is currently available at a competitive interest rate, which sweetens the deal.
Tax benefits of second home loan
There are tax benefits of availing of a second home loan. The principal portion of all your Home Loan EMIs can be claimed as a deduction up to Rs 1.50 lakh per
financial year under Section 80C of the Income Tax Act, 1961.
Moreover, the interest paid on the home loan is eligible for a deduction of up to Rs 2 lakh per financial year under Section 24(b) of the Income Tax Act, if it is a Self-Occupied Property (SOP), provided the acquisition or construction is completed
within five years from the end of the financial year.
Monetise your second home
Even if you do not reside in your second home, it can be monetised smartly. The house/apartment could be let out on rent/license fee, yielding you a regular source of income. What’s more, as per Section 71B of the Income Tax Act, you can
carry forward the loss from house property (i.e. in case the interest paid on the home loan is greater than the rental income) up to 8 Assessment Years from the Assessment Year in which the loss was first incurred. This loss can only be set
off against income from House Property.
The second home can earn you a regular income when you retire and can even be passed on to your future generation.
Conditions to keep in mind
Your home loan for the second house will serve to be one of the best ways to build a solid tangible asset. Having said that, always do the following:
- Carry out thorough research about the project/s under consideration. Check the rate offered, the tangible benefits, the builder’s background, clearances for the project, whether it is RERA registered, check if your bank has listed approval
for the project/s, etc.
- Calculate stamp duty and registration fee and make provision for the same.
- Do your research about the home loan – the interest rate processing charges, the amount to be paid as a down payment, what will be your home loan EMI, assess if it is affordable, the repayment schedule, whether there are any pre-closure
or prepayment charges, etc.
- Check your credit score, and if it is poor (i.e. below 500) take measures to improve it
- When you finally decide on the property and the home loan, ensure that you keep all the required documents ready.
As far as possible, do not go overboard when availing of a home loan for your second house. Borrow within your means (total EMIs ideally should exceed 40% of your net take-home pay), so that loan does not prove to be a burden and impact your credit
score. To get an estimate of how much the EMI would be on your second home loan use Axis Bank’s Home loan EMI Calculator.
Axis Bank provides a varied range of Home loans designed to meet the requirement of every individual. To know more about the various home loans offered, click here. To know how much
tax you could save with your second home, use Axis Bank’s Home Loan Tax Saving Calculator.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision