Before you buy your second house, find out how tax works if you have more than one property
Investing your money in real estate is a great choice given the current market conditions. Real estate prices have been on a steady climb, and it seems that property values, both residential and commercial, will continue to appreciate for the foreseeable future.
Whether you’re planning on living in the home or renting it out for monthly income, a home is one of the few investments that is guaranteed to appreciate with time.
When you’re thinking of investing in property, a home loan is an attractive option that will give you access to a pool of funds that will help you invest immediately. You can then pay back the loan amount over time, at your own pace.
Bajaj Finserv offers Home Loans at the incredibly low interest rates!
Before you invest though, you should give some thought to the tax implications of purchasing a second home. You will be eligible for tax benefits on home loan, and Bajaj Finserv helps you cut down costs even more by only charging you a processing fee of 0.8% when you apply for a loan online. You can apply for a Home Loan right now by clicking here.
This article examines the tax implication on more than one property.
If you reside in one of the houses that you own, it is assumed that there is no rental income from this property, and because of this, you don’t have to pay income tax on it.
If you’ve taken a home loan to procure this house, you are eligible for tax deduction on both the principal and interest amounts that you pay as the EMIs towards the loan. Bajaj Finserv has a number of online calculators and simulators that you can use to plan out your finances.
The cap for the tax deductible amount on principal payments on this property’s home loan is INR 1,50,000 and the cap on the tax deductible amount for interest payments is at INR 2,00,000
Second Home Options
If your second home is rented out, the annual rental amount that you receive from it is taxed after deducting the standard 30%, the municipal taxes that you pay, and the interest you’re paying on the home loan for this property, with no cap on the upper limit.
If this property is rented out for more than 300 days in a year, it is also exempt from wealth tax.
This is where the tax implication on multiple properties gets a bit murky and hard to understand.
If the second home is also occupied by family and you get no rental income from it, it is still considered to be rented out, and you are taxed for the amount of rent that the property would command annually, if it were rented out. The rent is calculated based on the prevailing market conditions. This also applies if the home remains vacant or is used as a holiday home.
What you could do to save money in this case, is declare the home with the higher potential rental value as self-occupied, so that your tax is calculated on the potential rental income of the house with the lower rental value.
Hopefully, these tax clarifications for multiple houses and properties have helped you plan out your finances better, and save more money using the tax deductions that you are eligible for.