According to a survey by Savills India, the second home market in India is gaining momentum and the demand is expected to rise further. A question that most second home buyers frequently pose is if there are any tax benefits that one can accrue by purchasing a second home. To understand the taxation part, you have to be first aware of the components of house property namely Self-Occupied Property and Let Out. Residential property that you use to reside in by yourself is termed as self-occupied while the other one is termed as Let-Out. It doesn’t matter if you have rented it or not. It will still be considered as Let-Out and a notional rental value will be considered as the gross taxable rent and taxed accordingly.
Since the financial year of 2019-2020, homebuyers have been given the benefit of considering two houses as self-owned and the remaining houses as let-out for taxation purposes. As per section 23 of the Income tax Act, 1961, if you are using your flat in Electronic City as your personal residence, the gross annual value would be considered as NIL. Hence, along with tax benefits, there is nil taxability when self-occupied.
Your rental income though is subject to tax under the head “income from house property”. If your second home has been financed through a home loan, you can enjoy tax benefits on the interest component. For Let-Out properties, you will be able to deduct a standard deduction on the interest on the loan, municipal taxes paid during the year along with the entire interest paid on the house loan and on 30 percent of the income. Under section 80C, owners of let-out properties can claim a deduction of up to Rs 1.5 lakh for principal repayment which is the aggregate of all home loan repayments. In the case of a “Let Out” house, if the interest payable on your home loan is greater than the rent received, the remaining portion can be adjusted against your other income to a maximum of Rs 2 lakhs for 8 successive years.
If your properties in Bangalore are owned jointly, the taxation would be split based on the percentage of ownership.
If you own self-occupied properties that have been financed by a home loan, you can claim a deduction of up to Rs 2lakhs on your home loan interest. If your residential apartment in Bangalore has been rented, you are eligible for a deduction on the full interest of your loan.
To conclude, if you are planning on buying that 2BHK Flat in Electronic City as a second home, ensure that you have your finances straight. Make no mistake in verifying the builder’s reputation so that your home loan gets approved without any hindrance. We here at Mahendra Homes are always happy to assist you with any queries that you may have. For any information that you need, please give us a call at +917676764466 or request a call back.