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Incometax
Multiple Home loans can reduce Tax load

Multiple Home loans can reduce Tax load

Shitanshu Kapadia August 29, 2020

multiple home loan
In 2006, Anandbabu has taken home loan and purchase his dream home in Ahmedabad. Home loan amount was Rs 7 lakh for 15 years & EMI was Rs 7,200. However, two year later he got transferred to Surat.

Instead of renting home at Surat, Anandbabu has bought another house, He could have sold old house to purchase new house but Anandbabu has decided to go for another home loan of Rs 15 lakh for 20 years, for which EMI is about Rs.16, 550.

Now Anandbabu has to pay total EMI of 23,750 Rs/-every month, increasing floating interest rates are making it difficult to pay this hefty EMI amount for both home loans. Anandbabu is in highest tax bracket and have to pay 30% tax. Which make it further difficult to save enough to pay both EMIs. Anandbabu was not fully aware about section 24 of income tax. Especially about fact that his tax load can be reduced by availing deduction facility on home loan in case of second home. Let’s understand section 24 income tax benefits of home loan.

Home loan repayment has two components principle and interest and both of these components are treated differently for tax calculation purpose.

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Principle Component: – Covered under section 80C and has Rs 1 lakh limit

This can be claim for deduction if you are living in the house that you have taken loan for. This amount cannot be claimed for under construction property or for the house in which you are not living. Exception to this condition is that if you are working in different city then you can claim exemption on principle amount of your home loan under 80C.

Interest Component: – Covered under section 24 and has Rs 1.5 lakh limit

Interest component up to 1.5 lakh is tax deductible under section 24. However in case of home loan on other property principle payment is not allowed for deduction, you can claim only interest for deduction.

However good part is there is no limit on the deduction for interest payment on the second loan. This rule is applicable on multiple properties. Whether the second house is purchased purely as an investment option or as a weekend getaway, the interest paid on a loan taken to buy it is tax-deductible.

Income from multiple homes:-

Income from all these homes is taxable in nature. Even if the second/third house is lying vacant, the Income Tax Department will consider that it has a rental value in order to calculate tax.

Other deduction allowed from multiple homes:-

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Expenses that can be offset against income from multiple homes are property tax, municipal water charges. Apart from these deductions you can have deduction for 30% of net annual value means 30% of actual rent value can be deducted from your income.

If you have several house than you can select one as primary house and the income from this property will be treated as nil and exempt from tax, even if you have actually rented it out. It is for this house that the limit of Rs 1.5 lakh applies for deduction on loan interest.

The entire interest amount on the loan taken for the other n number of houses, the income from which is taxable, can be deducted from your income. This applies to any number of houses you can afford.

So, if you are in highest tax bracket you can maximize tax saving by purchasing “n” number of house which you can afford by taking home loan.

Do post in your comment and review about this benefit.

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About The Author

Shitanshu Kapadia

Hi, I am Shitanshu. By Profession I am Engineer and working in the IT field. I am crazy about Finance and like to research on financial matters. I have written 80+ article on this blog. If you like my efforts kindly subscribe to this blog and also let your friends know about this website by sharing.

8 Comments

  1. Simran

    Very nice blog…

    June 28, 2012
  2. SBI home loans

    Best information on home loans . Really appreciate with the given information. I liked it a lot

    July 10, 2012
  3. poojadab

    Great Done by You and you really followed by followers whoom feel like this and i really appriciate your openions regarding home loan.Please continue these types of sharing and thanks alot for this one.

    July 10, 2012
  4. Liz

    Where allowed to apply for a multiple home loan? Just heard that fact here! If I knew that before I would really be doing it, I really thought that we could only get 1 loan each borrower. My bad though!

    September 4, 2012
  5. SACHANAND

    Can the benefit be still availed if both the houses are in the same city?

    smd

    October 30, 2012
  6. Shitanshu Kapadia

    Yes Sachanand,

    This benefit is still applicable although house are in same city.

    October 30, 2012
  7. Abbal Singh negi

    Sir I and my wife is govt. Employee tskern house loan in 2007 for yern years EMI 8500 still continue. Similarly we have purchased a flat in Chandigarh for 42 lacs in July 2017 with EMI Rs 22336.we have taskern both loan jointly.My quries are can we take both tax rebate under section 24 in both house loans ple suggest

    January 25, 2017
  8. Raviraj Parekh

    Yes sir, You can claim for interest exemption under section 24 for both house. However, you need to consider one house as given on rent and declare income from that house.

    January 29, 2017

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