Multiple Home Loans and their Tax Benefits

You can own as many properties as you wish to, take home loans for each of them and also rightfully claim tax benefits, as clearly stated under tax and banking laws of India. But the amount of home loan you can take {link to home loan eligibility article} will be evaluated based on factors such as your age, credit history, income and your ability to pay off the loan. You can expect tax benefits on the interest on loan taken for the purpose of purchase, construction, and renovation/repair. Besides this, you are also eligible to avail tax benefits on the repaid principal amount of the home loan borrowed. Let’s go through each benefit in detail.  

Benefit #1: Tax Claim on Interest Paid  
 

Under Section 24(b) of the Income Tax Act, you can claim tax deduction on interest paid on a home loan taken for property purchase, construction, renovation or repair, be it residential or commercial. This can be availed even if you’ve borrowed from friends and relatives, and not from banks/financial companies. Besides interest, you can also claim other charges levied for processing fee, prepayment charges, etc.

i) Self-occupied Houses: The amendment of Finance Act 2019 allows citizens to own and occupy up to two houses, and if you buy/construct more, the others are deemed to have been let out. Whether you have one or two self-occupied houses, tax deduction on interest paid on loan will be restricted to a maximum of Rs. 2 lakhs per annum in total. The deduction however can only be claimed from the year possession is taken. 

Note: In case of house construction loan, if the construction is not complete within 5 years from the end of the financial year in which the money was lent, you will be eligible for only Rs. 30,000 in deduction and not the Rs. 2 lakhs that you could have availed otherwise. The interest can be claimed in 5 equal installments starting from the year the construction is completed and possession of the house is taken. 

ii) Let-out Properties: The properties over and above the two self-occupied ones, will be deemed to have been let out for the purpose of allowance of interest on the amount borrowed. For these houses, you will need to offer notional market rent as income, even in case you have not received any amount in rent. With regard to tax deduction, you can claim total interest paid for such properties against the rent received, without an upper limit. 

Benefit #2: Tax Claim on Principal Amount Paid 

An individual can claim up to Rs. 1.5 lakhs as tax deduction for principal repayment of the home loan borrowed, as clearly stated under Section 80C of the Income Tax Act. This also covers the amount paid in stamp duty and registration charges. There are no unique benefits based on the kind of property (self-occupied or let-out), and irrespective of the number of properties you own, the aggregate deduction you can claim is capped at Rs.1.5 lakhs. 

This deduction cannot be claimed before you take possession of the property, and also on any part of the principal amount repaid before possession. No benefit can be availed on loan taken from friends or relatives.

If you sell or transfer the property within five years from the end of the financial year when the loan was taken, not only will it not be eligible for deduction in the year of transfer, deductions availed in the previous years are also reversed and taxed. However, this reversal does not apply if you repay the loan amount within 5 years. 

Note: Tax benefits claimed for interest paid on loan are not reversed in case you sell or transfer the property within 5 years. 

Benefit #3: Set-Off of House Property Losses 

You can claim an aggregate of loss of up to Rs. 2 lakhs under “Income from house properties” that can be set-off against other income. Unadjusted loss amount can be carried forward to eight subsequent years. 

All set for your next property loan? Have an in-house financial expert from Fincity guide you along the way for loans with the lowest interest rates and maximum tax benefits. Call us on 1234567890 and we’ll be at your service!

Read more on how you can invest and save smart with Home Loans and their tax benefits. {Home Loan tax benefits article} 

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