People buy a second home for many reasons, which, inter-alia, include as an investment for capital appreciation; to use it as a holiday home; to get a regular stream of income by way of rentals; or to diversify their investment portfolio.
However, it is important for an individual, who is planning to buy a second home, to understand the tax implications under the Income-Tax Act 1961 of owning and maintaining the second home.
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Second House is Self-Occupied
If an individual owns more than one house property for his use, then under the provisions of the Income Tax Act, 1961 (the ‘Act’), any one property as per his choice is treated as self-occupied and its annual value is computed to be nil. The other house property is deemed to be let-out and a notional rent as per the provisions of the Act is computed as the taxable income under the head ‘Income from House Property’. In other words, the second house is treated as being rented-out and its estimated rental income is treated as taxable income.
Even vacant house has tax implications
If you own more than one Self Occupied Properties (SOP), you have a choice to treat any one of the properties as SOP. The other such property (ies) which lies vacant will be treated as Deemed Let Out Property (DLOP) under the Act. If a property is treated as a DLOP, it is effectively put at par with a let out property as far as taxation is concerned. Hence, a notional rental value (method to calculate such value prescribed under the Act) is considered as the gross taxable rent for such property. You are allowed to claim a flat deduction of 30% for repairs and maintenance charges.
Second home is used as a holiday home
As the benefit of self-occupied property is available for only one home, the estimated annual rent will be considered as the taxable value.
Second House is Let-Out
If the second house is let-out to a tenant, the actual rent received, subject to certain conditions, is treated as the taxable income under the head ‘Income from House Property’.
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 restricted to Rs 150,000 p.a. ( 2 Lakh from AY 2015-16), subject to certain conditions.
Please note Till FY 2016-17, loss under the head house property could be set off against other heads of income without any limit. However, form FY 2017-18, such set off of losses has been restricted to Rs 2 lakhs.
Effectively, if Assessee owns more than one house property & is kept for own use,
- one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
- Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above.
In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit. Please note Till FY 2016-17, loss under the head house property could be set off against other heads of income without any limit. However, form FY 2017-18, such set off of losses has been restricted to Rs 2 lakhs.
However, for the second house property, no deduction is available for repayment towards the principal portion of housing loan under section 80C.
Image courtesy of sscreations at FreeDigitalPhotos.net
(Republished with amendments on 29.06.2018)
Author Bio
What if i have a own house, due to distance from office i am staying in a rented home. Can i clam HRA, Intrest & Loan amt paid.
I have 1 property fully owned by me AND ANOTHER jointly by me and my wife.
both the houses are self occupied by us.
Can I claim 1 house as self occupied and another joint property as self occupied
by my wife? is it correct ?
i am purchased second home by housing loan. first home is not by housing loan. so can i get housing loan exemption?
Nice article
Sir, Under which section of IT Act, interest repayment to the second house (rented or let-out) is deductible? Is it without upper limit of 2 lakhs?
Thanks
Dear sir,
We have 1BHK flat in Hyd ( showing self occupaid ) and i am working bangalore can i plan to purchase one 2bhk flat in bangalore.
house loan interest i am claiming on Hyd Flat and House rent showing in Bangalore for self. please suggest me whether can go ahead with both House loans how can i claim both house loan interest. both house loans together interest will be Rs. 2.0 lacs limit or indivsual loan.
pl clear me doubt, thank you
Hi,
Can an interest component of repayment towards a property under construction also be considered as DLOP and accounted for deduction of interest for tax calculations ?
I had opted for a home loan in 2010 towards a house property in Vapi and the same was finally disbursed/ cleared up during July 2014. Again in November 2014, i have availed another home loan for another house at Vapi only. Can I get the tax benefit of both these property. Please suggest.
Dear Sir,
My sister got a share in a redeveloped property of her late husband,where 6 flats were built.
Since this financial year the society has started charging maintenance expenses of 60,000 per year.
The house is vacant.Since there is no income,can we claim the society maintenace charges as carry forward expenses to be set off after a tenant comes or is there any other treatment.
Regards
Kishen (brother)
hi,I already have two home loans and I am purchasing third property then my questions are
1. Can I claim interest portion of third property for deduction?
2. Is the bank issue interest certificates for claiming the deduction?
3. Is the interest rates are same for fist, second and third property?
Please help me.
I have sold one property on my name recently,can I repay the home loan on my second home on my wife name(sole owner,salaried) purchased recently 6months ago .can I claim capital gain tax benefit by doing so?
Tax exemption is available for second home loan i.e. home loan availed for second home. Or it is like two home loans are required to be in force simultaneously.
Dear Sir,
I invested in 2 flats, I want to sell one of my flats and use the return towards payment of my instalment for the 2nd flat.
Will my gains attract short term/long term tax on it.
Thanks
Sir,
Thanks for providing good information. I have little different query. I am currently residing in house which was given to me by my father-in-law by way of Will. I am planning to buy a small 2nd home with my own funds (without loan) I don’t have any other home either in my name or in the name of my spouse.
Whether the 2nd home will still be considered as ‘Deemed let out’ for the purpose of Income tax act
Thanks and regards
Ajit
I have two flats under rent and am currently staying in a rented premises while constructing a house in rural area because of capital gains from a previous property sold. Can I get benefit of rent paid on rented property? Do I have to pay wealth tax?
In case of purchase of second home under the foll conditions, how is IT to be filed:
a) Same city of first home
b) Second home is under construction & therefore cannot be let out till the next 36 months
c) Second home is taken in the name of wife who is not employed
d) First home balance loan – is it better to prepay and close or to continue?
While i understand from your article that the entire interest amount of the second home can be claimed under tax exemption, my query is more in the perspective of the first loan remaining in force, the rentals whether applicable i case of under construction 2nd home and the choice of city of 2nd home.
I have purchased second house jointly with my wife .can I take advantage of 50 % interest and for my wife this as Self occupied and she takes benifit of 50% principle and intrest both.
Can i help my son with my retired fund to help to purchase property for him.this is his first proprty. I hv my own named property. Can i do so?
R/sir, I have current planning to purchase onother property.it is a row house costing 33,70,000( goverment value). it is under construction now. it will be completed in next yr in Feb. currently I am working in PSU having annual income 4,90,000.I am currently living in my own purchase flat since 2011. I have cleared loan of hosing of this flat of 5,00,000 last year in august.plz guide me about tax regarding purchasing of new property as well as future taxes to be paid for this property.
Sir,
I have two housing loans. One loan i have claimed as self occupied. Second housing loan is borrowed jointly & the house is jointly owned by me & my wife. we want to share the second housing loan as 50% & 50%.Can I show the second housing loan interest (50%) towards let out property (NOTIONAL RENT 50%) & my wife can claim the second housing loan principal amount (50%) & Interest amount .
Pl. reply whether it is permitted.
Also since my wife self occupies the second flat, will it fall under perview of wealth tax.
Sir,
I have two housing loans. One loan i have claimed as self occupied. Second housing loan is borrowed jointly & the house is jointly owned by me & my wife. we want to share the second housing loan as 75% & 25%.Can I show the second housing loan interest (75%) towards let out property & my wife can claim the second housing loan principal amount (25%) & Interest amount (25%) as her self occupied house. Pl. reply whether it is permitted.For me it is a second loan and for my wife it is first loan.
I have a flat and it is rented out. Maintenance charges to society is paid every month by the tenant by deducting from the rent and remaining amount I am receiving as rent. Can I deduct 30% from the rent as maintenance expenditure for calculating the taxable income from house property, as the society takes care of only common facilities like security, supply of water, common area lighting, lift maintenance, road maintenance etc.. Inside the flat society do not maintain / take care. Pl let me know am I eligible for 30% deduction.
I am having two properties out of which one is located in a very remote area and would not even fetch Rs 100 as rent; in short it is in dilapated condition. So is there any case law to prove that DLOP would not apply..?
Please Help
its Urgent..!
I’m a central govt employee. I’ve purchased 2nd house.
I need few clarifications regarding income tax computation.
1. As I understand, I need to declare 2nd House as LET OUT as first one is self occupied. So, when I declare it as LET OUT, I’ll have to show notional rental value, though it is empty. It is 46 sq.m. and is in Mansarovar, Jaipur.
I want to know how do I compute this notional rental value.
2. Wealth tax is also levied for 2nd house. Where should I show it in ITR2?
May I request your kind response.
Sir,
I have two housing loans. One loan i have claimed as self occupied. Second housing loan is borrowed jointly & the house is jointly owned by me & my husband. we want to share the second housing loan as 70% & 30%.Can I show the second housing loan interest (70%) towards let out property & my husband can claim the second housing loan principal amount (30%) & Interest amount (30%) as his self occupied house. Pl. reply whether it is permitted.
can i declare my single flat as self occupied even if it is lying vacant.
please help
Dear Sir,
Please help me to understand that tax benifit for below scenario.
I had brought 1st flat in Nov 2009 as a single Owner. Home loan for this flat is completed recently and waiting for the documents from Bank.
Now I want to purchase another flat on My wifes name and I will be a Co applicant for that. We both will contribute EMI ( 40% by Wife & 60 % by me)
Please guide us for the Incometax benifit for both of on below points.
1) I Want to know, is I am elligible to avail the tax benifit ( on 2nd homeloan with Co applicant) as I have already avail it during my 1st flat purchase.
2) Same to my wife as its her fist home loan with main applicant.
Dear Sir,
Please help me to understand that tax benifit for below scenario.
I had brought 1st flat in Nov 2009 as a single Owner. Home loan for this flat is completed recently and waiting for the documents from Bank.
Now I want to purchase another flat on My wifes name and I will be a Co applicant for that. We both will contribute EMI ( 40% by Wife & 60 % by me)
Please guide us for the Incometax benifit for both of on below points.
1) I Want to know, is I am elligible to avail the tax benifit ( on 2nd homeloan with Co applicant) as I have already avail it during my 1st flat purchase.
2) Same to my wife as its her fist home loan with main applicant.
I HAVE PURCHASED A SECOND FLAT IN PUNE.I HAD TAKEN LOAN OF RS 27 LAKHS IN APRIL 2012 AND I AM PAYING EMI OF RS 30,000 PER MONTH.I ALREADY OWN ONE HOUSE IN NAGPUR.AS ON DATE THERE IS NO LOAN ON THE FIRST HOUSE AND IT IS SELF OCCUPIED. I HAVE TAKEN OVER THE FLAT FROM THE BUILDER IN MARCH 2014.KINDLY ADVICE ME HOW TO FILE THIS IN THE INCOME TAX RETURN FOR CLAIMING TAX EXEMPTIONS AS PER RULE
My wife is sole owner of an apartment bought by her in 1998. No loan. Own savings. Having rental income from the same. In 2009 she along with her mother purchased another apartment sharing equal amount. Mothers share was down payment and wifes share was in form of home loan, though the loan docs are in both name being joint property. Now my problem is what are the tax rebates permissible and what is tax implications of having two houses in her name?
Dear Sir,
Please help me to understand that tax benefit for below scenario.
I had brought 1st flat in Nov 2009 as a single Owner. Home loan for this flat is completed recently and waiting for the documents from Bank.
Now I want to purchase another flat on My wife’s name and I will be a Co applicant for that. We both will contribute EMI (40% by Wife & 60 % by me)
Please guide us for the Income tax benefit for both of on below points.
1) I Want to know, is I am eligible to avail the tax benefit ( on 2nd home loan with Co applicant) as I have already avail it during my 1st flat purchase.
2) Same to my wife as its her fist home loan with main applicant.
Dear Sir,
Please help me to understand that tax benifit for below scenario.
I had brought 1st flat in Nov 2009 as a single Owner. Home loan for this flat is completed recently and waiting for the documents from Bank.
Now I want to purchase another flat on My wifes name and I will be a Co applicant for that. We both will contribute EMI ( 40% by Wife & 60 % by me)
Please guide us for the Incometax benifit for both of on below points.
1) I Want to know, is I am elligible to avail the tax benifit ( on 2nd homeloan with Co applicant) as I have already avail it during my 1st flat purchase.
2) Same to my wife as its her fist home loan with main applicant.
I own two flats. First one acquired in 1999 and second one in 2007. I now intend to sell both these flats and swap the consideration into another flat. What will be the tax implication? Will I get the benefit of indexation for both flats? If i use the entire consideration towards purchase of a flat will i have to pay any tax on the sale of flat?
sir,
Q.1 :- If i buy a house sale deed registration fees paid in to registrar office rs. 35,000/- can i claim income tax deduction under 80-c
Q.2 :- If i can taken a loan for my house renovation / repair can i claim repayment of loan principal u/s 80-c & interest u/s 24 income tax deducation
pls reply for the same
thanking you
snehal pathak
I am from Ahmedabad and I bought my first house in Ahmedabad in 2007. I had taken a loan and completed my loan in 2010. In 2012, I shifted to Mumbai and now I am planning to buy one more flat in Ahmedabad. so if I take home loan on second house (12 Lac), how much tax benefit I could have? Please explain.
I am living on rent in Mumbai.
Thank,
Manisha
Dear Sir,
Can you please clarify the following.
1) I had bought a flat with home loan from bank and now repaid the loan in full and released the mortgage.
2) Now I would like to buy another flat which has just launched and will take 3-4 years to construct. I would like to take home loan jointly with my wife. I will make 80% payment of EMI and Wife will make 20% payment of EMI. Please let us know what income tax benefit we will get for interest repayment on this 2nd flat.
Regards.
M.K.Saha
Hi Pradeep
Tax is applicable even if one is unable to find a tenant in a given year.
Hard Luck Man!!!!
Regards
Kalpesh Gosar
If a person having two house properties among which one is given by the government under subsidy for a nominal amount and has sold the same property from which he gained a capital gain of say 11 lakhs then what would be the tax implications
I have my own house and leaving in it. Can I get the deduction of repair & Maint. @ 30% under house property income. If can take, at what value it will be calculate.
dear sir,
if i taken first housing loan and paying EMIs and taken loan for second house before closing the first loan.
how to claim interest & repayment paid for both loans
thanks
Dear Mr.Giridhar,
under Sec54 of IT act, you can acquire a new residential flat with in year before or 2 years after the transfer date and you too have second option to construct a new residentail property with in 3 years of the sale of existing flat to avoid capital gains
I am having self occupied flat in chennai right now. I am planning to shift my area and buy one more flat by way of selling my first flat. My question is if I sell my flat and use this money to repay second flat, will I payable for capital gain? I will appreciate if someone can share inputs on this situation – whether capital gain can be avoided if first flat is sell after 1-2 yrs of purchase of second one? Thanks in advance
GIRIDHAR
I am having one house right now. I am planning to buy second home without selling my first home. My question is if I buy second home and in near future, say 1 yr, I sell first home and use this money to repay second home, will I be able to avoid capital gain? As the sequence in my question is reverse to easy available rule on capital gain, I will appreciate if someone can share inputs on this situation – whether capital gain can be avoided if first home is sold after 1-2 yrs of purchase of second home? Thanks in advance
From M.R.Sahdev
Dear Taxguru,
I have written a comment to you on 9th August but I have not received any reply sofar.
I shall be very grateful if you kindly send your valuable advice urgently. Regards
M.R.Sahdev
I shall be grateful if you kindly clarify the following points.
My son,employed at Bangalore ,has a house at Bangalore.2 years back, he was tranferred to Gurgaon where he took a rented house.Now after 2 years ,he has purchased a house of his own at Gurgaon and recently shifted to this house, .
For his first house at Bangalore,the loan amount has come to an end. The house has been let out for the last about 2 years.He has paid income tax on the ‘income from House property’ during these 2 years.
For the second house at Gurgaon, he has taken a bank loan for which he has been paying EMIs since July 2011.
Now if he declares the Bangalore house as’ self occupied’, kindly advise the tax treatment from the second house at Gurgaon which he is now actually occupying.Can this second house be treated as ‘self leased’ house?.Is there any benefit out of ‘self leased’ under the provisions of law? Please throw some light on this aspect also.
In case you need any other information from me, I shall be too pleased to furnish the same.
I shall be highly obliged for your early response on my e mail.
Thanks and regards.
I have cleared the housing loan of my self occupied property and have purchased a second house in Dec’ 10. I have availed a loan and the EMI has already started. I’ll be getting the possesion somewhere in May 2012.Let me know if i can claim the stamp duty and registration charges along with the principal and interest paid on the second house property?
Iam having one house property at Patna acquired through staff loan of my organisation.and presently let out as my posting is at present at Delhi. and i am residing in my company’s flat
I have availed a second housing loan during FY 2010-11 to acquire another house at Noida, Poseession of which is likely to be in july 2013. Deduction of loan installment ahs already been started with release of Ist installment.
My query : Whether Interest accrued on second housing loan will qualify for tax benefit for FY 2010-11 ? If yes, what will be ceiling?
Hi,
I have 2 Flats , both are taken on Loan. If i rent one house & Stay in the other house then please suggest what all i can avail under HRA deduction & Interest Deduction ..Can i have the Interest paid for both he houses deducted from my Taxable Income..
I believe i am supposed to show the rent from the Property rented out as Income while doing Tax Calculation.
Regds/Nitin
Yes. Since itsa deeming provision the highest of the three, 1.actual rent received , 2.Assessable value as per Corporation assessment value for tax levy , 3. Fair rent( market rent receivable if let out) will have to be offered to tax.
If one chooses not to let out the second house or if one is unable to find a tenant in a given year, is he still liable to pay tax on the ‘notional’ rent for the second house ?
Thanks,