In our previous blog, Square Yards has mentioned the various loan implications that come with the Second Home Loans.
In our latest blog we will capture the various deductions that are allowed with second home loans.
The deductions that are allowed on the Second Home:
Deduction for Municipal Taxes
The taxes paid to the local authority, generally the municipal taxes, are allowed as deduction in the financial year, in which such taxes are actually paid. This is irrespective of whether these taxes pertain to the current financial year or the earlier year. Therefore, an individual should keep a track of the municipal taxes paid and claim this deduction accordingly.
Deduction for Repair & Maintenance
Further, a sum equal to 30% of the annual value of the house property is allowed as deduction towards repair and maintenance charges. It is pertinent to note that this deduction of 30% is a fixed percentage, irrespective of the actual amount incurred by the individual i.e., irrespective whether an individual incurs more or less amount, he can only claim a deduction for 30% of the annual value of the house property.
Interest Deduction
Whether the second house property is deemed to be let-out or actually let-out, the actual interest paid on the housing loan is allowed as deduction. This is contrary to the case of a self-occupied property, wherein the maximum interest on housing loan is generally restricted to Rs 150,000 p.a. ( 2 Lakh from AY 2015-16).
However, for the second home property, no deduction is available for repayment towards the principal portion of housing loan under section 80C.
If it’s financially feasible, owning a second home can be an excellent investment that can simultaneously serve multiple purposes such as vacation or rental purposes or even used as a primary home during post retirement.
However, since owning any home carries a significant financial burden starting from mortgage and taxes to maintenance and repairs- It is generally recommended in one’s best interest to understand the tax implications of second-home ownership.
