With steady rise in the incomes coupled with the economy slowly emerging out of the recent recession,the housing sector is once again appearing to be an attractive investment option. Many salaried people as well as businessmen are now opting for a second home as an investment in real estate even if they do not need for residing. Apart from the anticipated appreciation of the property there is another strong reason for this trend. It is the lucrative savings on taxes that can be availed on the second home loan. One can avail a second home loan depending on repayment capability and then avail tax deductions on the interest being repaid on the second loan while continuing to enjoy the tax savings on the principal as well interest of the first loan repayments. Exemption Policy Any buyer who avails a home loan for the purchase of residential unit is eligible for tax exemption under Section 80C of the Income Tax Act. In such cases the amount repaid towards the principal of the loan is exempt from taxable income up to maximum limit of R1 lakh per annum. Similarly,the amount repaid towards interest element is exempted from taxable income to a limit of R1.5 lakh per annum. In the case of a second home for which a loan is taken,there is no exemption for repayments on the principal element. However interest paid on the second home loan is exempt from taxable income and there is no upper limit to the amount that can be exempt. Additionally if more than one borrowers are availing thi loan,all the joint borrowers are eligible for exemption on the interest element individually. Additionally 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. Considering this wonderful opportunity,it is prudent to declare the home that has maximum loan burden on as the secondary home so that more savings can be availed on the higher interest being paid for a bigger loan amount. Saving on Rental Income from Second Home: Irrespective of the actual occupancy of the secondary residential property,a notional rental income is considered when calculating the taxable income from the property. However in case it is the second home as is being shown as non self occupied there are a few provisions which can help reduce the tax burden. Firstly all municipal and allied taxes as well as property and wealth tax paid for the property can be deducted from the notional rental income calculated for the house. A standard deduction of 30 per cent is permitted over and above towards repair and maintenance. Additionally if the individual incurs any losses,the same can be offset against the rental income. The amount being claimed as losses for that fiscal can be directly subtracted from the rental income. In case the amount of losses being more than the notional rental income fixed for that property,all such losses can be adjusted against income from that house for the next 8 years. 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. Given these tax benefits,the option of availing a second home loan is rapidly gaining popularity among all classes in the country. In addition,it goes without saying that tax rebates alone should not be a criteria for taking up a second home loan. The author is CEO,Bankbazaar.com
