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Home Loans have a lot of attractive features- Home loan interest rates are usually lower, the eligibility criteria are fairly relaxed, and the documents required for home loans are fewer than a personal loan or business loan. Borrowers can get up to 90% of the house’s construction or purchase value as a loan. The best part? You can apply for a tax rebate on Home Loan repayment.
That is why people prefer home loans for purchasing or renovating their houses. Since this is a long-term commitment, borrowers sometimes plan to buy a second home as an investment or as another source of income. A second home loan can be quite handy in such situations. In case you are still unclear: a second home loan, as the name suggests, is the second loan taken by any borrower.
A Second Home Loan comes with limited tax benefits, which depend on the use of the loan and the current income tax law. If you’re planning to buy a second house in India, you might be wondering – can I still get tax benefits on a second home loan? The answer is yes, but the rules are different under Sections 80C and 24 of the Income Tax Act. It’s prudent to know your home loan eligibility and use an EMI calculator to analyse your eligibility before applying for a second home loan.
Let’s break it down in simple terms and learn how you can get tax benefits on your second home loan in this article
What is a Second Home Loan?
Under Indian Income Tax laws, when an individual owns more than one residential property, only one can be declared as 'Self-Occupied Property' (SOP). Any other property is classified as 'Deemed to be Let Out' (DLOP), irrespective of whether it is actually rented out or vacant. A second home loan is the loan taken to purchase this additional property.
How Can You Get Tax Benefits on a Second Home Loan in India?
The Indian Government allows tax rebates on second home loans under two sections of the Income Tax laws: Section 80C and Section 24. The following paragraphs explain the key features of both:
Tax Benefits on Second Home Loan According to Section 80C
Home loan EMIs generally consist of two elements: the principal (the amount borrowed) and interest (the extra amount you pay). The home loan amortisation schedule provides a detailed division of the principal and interest. You can find the amortisation schedule by using PNB Housing’s home loan EMI calculator.
Section 80C of the Income Tax Act allows borrowers to claim tax deductions of up to ₹1.5 lakh on principal payments every financial year.
₹1.5 lakh deduction on principal applies to both the first and second home loans. This means that if your first home loan was active when you applied for a second one, the maximum tax deduction you can claim for the principal payment of both loans is ₹1.5 lakh.
You can apply for tax deductions under Section 80C, irrespective of whether the house is rented or self-occupied.
Tax Benefits on Second Home Loan According to Section 24
While Section 80C enables you to claim tax deductions on the principal component, Section 24 allows you to claim tax benefits on the interest component. The Union Budget 2025 has introduced a major change: the deduction for interest paid on home loans under Section 24(b) has been increased to ₹3 lakh per year (up from ₹2 lakh) for let-out properties.
Important Changes in Budget 2025:
Old Tax Regime:
- For self-occupied properties: Interest deduction remains capped at ₹2 lakh per year under Section 24(b)
- For let-out (rented) properties: Interest deduction has been increased to ₹3 lakh per year
- Principal repayment: Up to ₹1.5 lakh under Section 80C
New Tax Regime:
- Interest deduction of up to ₹3 lakh is available only for let-out (rented) properties under Section 24(b)
- No deduction is available for self-occupied properties under the new tax regime
- Section 80C benefits are not available under the new tax regime
Case 1: Both Properties are Self-Occupied (None Let Out)
If both your first and second houses are occupied by you and your family (or one is vacant), both properties can be treated as self-occupied. Under the old tax regime, you can claim a combined interest deduction of up to ₹2 lakh on both properties under Section 24(b). Under the new tax regime, no interest deduction is available for self-occupied properties.
Case 2: One Home is Self-Occupied and the Other is Rented
When your first house is occupied by you and your family, and the second house is rented out, you must show rental income from the second property and pay taxes on it. Under the old tax regime, you can claim up to ₹3 lakh as interest deduction on the let-out property. Under the new tax regime, the ₹3 lakh interest deduction is also available for let-out properties.
You can deduct expenses for repairs, maintenance, and other costs (a standard deduction of 30% of net annual value is allowed). If the net loss from house property exceeds ₹2 lakh, you can carry forward the excess loss for the following eight assessment years.
| Section | First Home Loan | Second Home Loan (Self-Occupied) | Second Home Loan (Let-Out) |
|---|---|---|---|
| Old Tax Regime | |||
| 80C (Principal) | Up to ₹1.5 lakh | Combined limit of ₹1.5 lakh across all investments | Combined limit of ₹1.5 lakh |
| 24(b) (Interest) | Up to ₹2 lakh | Combined ₹2 lakh for both self-occupied properties | Up to ₹3 lakh |
| New Tax Regime | |||
| 80C (Principal) | Not available | Not available | Not available |
| 24(b) (Interest) | Not available | Not available | Up to ₹3 lakh |
Conclusion
The Indian Government provides several tax benefits on second home loans. While second home loans offer tax benefits, always check your eligibility, EMI affordability, and long-term goals. Use tools like PNB Housing’s EMI calculator before applying.
Frequently Asked Questions
1. What is the home loan tax benefit for a second home?
- You can enjoy a home loan tax benefit for a second home under two main sections of the Income Tax Act.
- Under Section 80C, you can claim up to ₹1.5 lakh annually on the principal repayment.
- Under Section 24, you can claim up to ₹2 lakh as a deduction on the interest paid. These benefits apply whether the second property is self-occupied or rented.
2. Are there tax benefits for a second home loan under construction?
Yes, you can still claim a tax benefit on a second home loan under construction, but only after the property’s completion. The total interest paid during construction can be claimed in five equal installments starting from the year the construction is completed. However, no deductions are available during the construction phase itself, as per current tax rules.
3. Can I claim tax benefits on the principal repayment of a second home loan?
Yes, the tax benefits on second home loan also include deductions on the principal amount under Section 80C. You can claim up to ₹1.5 lakh each financial year for the total principal repaid on all home loans. This benefit applies whether your second property is self-occupied or rented, making it easier to manage repayments while saving on taxes.
