The tax advantages of multiple home loans are broken down in today’s Ask Wallet-Wise based on self-use, rental, and tax regime under both old and new tax regimes.
Ask Wallet-Wise: Expert Guidance on Home Loan Tax Benefits
The Ask Wallet-Wise program provides professional guidance on issues pertaining to personal finance and questions about money. You may send your questions to askwalletwise@nw18.com, and we will do our best to have a leading financial expert respond.
Understanding the Home Loan Query
In order to buy an apartment in 2011, I took out a house loan, which I have now paid back in full. For a separate apartment, I want to take out another house loan. Will this new loan qualify me for tax benefits?
Expert’s Advice on Multiple Home Loans
Expert’s Advice: The number of house loans you may deduct, whether at the same time or after repaying an earlier loan, is unlimited under tax regulations. Tax advantages for a second house vary depending on whether it is rented or used for personal use and the tax system selected.
The full home loan interest is deductible under the previous tax system, and you may claim a 30% standard deduction on rental income if you rent out the second residence.
🏠 Old Tax Regime: Home Loan Advantages
- Interest Deduction: Full interest deductible for rented property
- Standard Deduction: 30% deduction on rental income
- Self-Occupied Limit: ₹2 lakh combined for two homes
- Loss Set-Off: Up to ₹2 lakh against other income
- Carry Forward: Remaining loss allowed for 8 years
Limits for Self-Occupied Homes
Since only two self-occupied homes are allowed, the interest deduction is limited to Rs 2 lakh for both properties combined if they are self-occupied. Any loss of home property may be deducted from other income up to Rs 2 lakh each year, with the remaining amount carried over for eight years.
A self-occupied property is not eligible for an interest deduction under the new tax system. Losses under the home property head cannot be offset against other income, therefore interest may only be claimed up to the taxable rental income (limited to 70% of rent) if the property is rented out.
⚠️ New Tax Regime: Key Restrictions
- No Interest Deduction: For self-occupied property
- Rental Property: Interest limited to taxable rental income
- Loss Adjustment: No set-off against other income
- 80C Benefits: Not available under new regime
- Planning Needed: Choose regime carefully
Principal Repayment and Section 80C
Principal payments for all house loans combined is deductible under Section 80C, up to an aggregate maximum of Rs 1.5 lakh, along with other qualified investments. However, this is only accessible if you choose the old tax regime, since Section 80C advantages are not available under the new regime.
Frequently asked questions
1. After repaying the first house loan, may I claim tax advantages on a second one?
Indeed. The number of house loans you may deduct is unlimited. Benefits vary depending on the tax system you choose and whether you live in the residence or rent it out.
2. For a self-occupied second home, what deductions are available?
Previous tax system: The annual interest rate on a home loan is limited to ₹2 lakh for both self-occupied homes.
Up to ₹2 lakh in losses may be deducted from other income annually; the leftover amount can be carried over for eight years.
The new tax system prohibits the deduction of interest.
3. If you rent out the second residence, what deductions are available?
The whole interest on a house loan was deductible under the previous tax system. Additionally, you are able to deduct 30% of your rental revenue.
Under the new tax system, interest deductions are restricted to taxable rental income (up to 70% of rent); losses on real estate cannot be deducted from other sources of income.
4. How do tax advantages relate to principle repayment?
Principal payments for all house loans combined is deductible under Section 80C up to ₹1.5 lakh, but only under the previous tax system. The new system does not provide Section 80C benefits.
5. Is it possible to claim benefits for more than one property?
Yes, only two properties are eligible for tax incentives for self-occupied homes. Interest deductions for additional self-occupied homes are not permitted after that.
Conclusion
The tax advantages of multiple house loans vary depending on the kind of property (self-occupied or rented) and the tax regime used. Maximum deductions on principle and interest are available under the old system, including with set-off provisions for losses.
The new system restricts deductions: self-occupied homes are not eligible for any benefits, while rental property is only eligible for a small number of deductions. You may optimize your tax savings by carefully planning your home loans and property use.
Disclaimer
Disclaimer: This content is for general informational purposes only and does not constitute professional tax advice. Consult a qualified tax advisor for guidance specific to your situation.
