In 2016, Anandbabu took taken home loan and purchased his dream home in Ahmedabad. The home loan amount was Rs 7 lakh for 15 years & EMI was Rs 7,200. However, two years later he was transferred to Surat.
Instead of renting a home in Surat, Anandbabu has bought another house, He could have sold the old house to purchase a 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 a 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 the highest tax bracket and has to pay 30% tax. Which makes it further difficult to save enough to pay both EMIs. Anandbabu was not fully aware of section 24 of income tax. Especially about the fact that his tax load can be reduced by availing deduction facility on a home loan in case of a second home. Let’s understand section 24 income tax benefits of home loans.
How Multiple Home Loans Can Reduce the Tax Load?
Multiple home loans refer to the scenario where an individual holds more than one housing loan simultaneously. These loans could be for purchasing different properties, constructing homes, or renovating existing ones. The primary motive behind availing multiple home loans often revolves around investment diversification and wealth creation.
Home loan repayment has two components principle and interest and both of these components are treated differently for tax calculation purposes.
Principle Component – 80C (1.5 Lakh Limit)
In India, taxpayers can claim tax deductions on the principal amount of their home loan repayments as per Section 80C of the Income Tax Act. According to this provision, people can deduct up to INR 1.5 lakh per year for the principal repayment of their home loans.
Interest Component – Section 24 (2 Lakh Limit)
Additionally, the interest paid on home loans is eligible for tax benefits under Section 24(b) of the Income Tax Act. Homeowners can claim deductions of up to INR 2 lakh per annum on the interest component of their home loan repayments, provided the property is self-occupied. For properties that are let out, there is no upper limit on the interest deduction.
Tax Implications of Multiple Home Loans
Deductions under Section 80C
Individuals can avail deductions under Section 80C for the principal repayment of each loan when they have multiple home loans. This enables borrowers to make the most of their tax advantages by diversifying their investments among a number of properties.
Tax Deductions under Section 24(b)
Likewise, the interest incurred on every mortgage can be deducted for taxes according to Section 24(b). By utilizing this benefit on various properties, people can greatly lower their taxable income and total tax responsibility.
Impact on Capital Gains Tax
Apart from the advantages mentioned earlier, having multiple properties can also assist in reducing capital gains tax responsibilities. Individuals are eligible for exemptions on capital gains from selling a property by reinvesting the money in several residential properties, according to Section 54 of the Income Tax Act.
By strategically taking advantage of tax deductions available for multiple home loans, people can effectively reduce the amount of taxes they owe. Optimizing the distribution of principal and interest repayments among different properties can maximize tax advantages.
Although several home loans come with substantial tax benefits, borrowers should be cautious of the risks involved. These consist of possible limitations on cash flow, changing interest rates, and regulatory adjustments that could affect the real estate industry.
