Second Home Taxation Details You Need to Know
Buying a second home opens a lot of doors to earn additional income. The swift appreciation in property rates, in recent years, only makes investing in real estate more lucrative. If an insufficiency of funds is what’s stopping you from buying a second property, think again.
Banks today are more open towards aiding applicants with their Home Loans, given the reduced risk because of the currently favourable market scenario. You can get easy approval when you apply online for Home Loan and get instant approval for secured loans from financial institutions like Bajaj Finserv. As the owner of multiple properties you would be eligible for second home tax considerations too. All these benefits are sure to make you more financially secure in the future.
But before you go forward with it, here’s what you should know to help you with the tax planning for owning a second home.
Taxation on Second Home
This helps you to estimate the tax considerations you are eligible for.
- If your property is on rent and there’s a constant source of monthly income, then the tax would be deducted from the annual income generated by the property. The income that is left after subtracting municipal taxes, standard deduction, and interests from it is taxable.
- If your property is vacant or self-occupied, then the tax deduction occurs on the notional rent of your property. The same deduction as mentioned is subtracted from the notional rent and the remaining sum is taxable.
Second Home Tax Benefits
Home Loan Interest Rates:
If you’ve taken a loan for a house that is occupied by you, then the interest amount repaid, up to 1.5 lakhs, qualifies for tax reduction under the Section 80C of the Income Tax Act. For a property that isn’t occupied by you, the interest rate can be claimed as a deduction with no upper limit irrespective of the property being rented out or not.
Municipal Tax Deduction:
The Income-Tax Act 1961 provides a deduction for the municipal taxes paid during the financial year against your rental income. However, tax authorities allow deduction only for the current year and not for the year in which the tax invoice was raised. It is important to keep track of your tax payments to enjoy the benefits of tax deductions.
The Income Tax Act 1961 provides a flat 30% standard deduction on the total taxable value of your property. This is to cover up the costs incurred for maintenance, home insurance, or any other house-related expenditures. The deduction is irrespective of the actual money spent.
Knowing the market value of your property before you go ahead with the loan is vital. It helps determine the loan eligibility and tax considerations you are entitled for. Financial institutions like Bajaj Finserv offer you necessary guidance on all the legal and technical aspects of owning a property and tips regarding the current real estate market scenario.
Other Tax-relief Options
Pay Tax on the Cheaper Property:
When you own two properties, you have the alternative of listing your rented-out property under self-occupied if the former has a lower realty value. It is financially beneficial when you have to pay tax on the smaller income.
Avail Deduction on the Joint Home Loans:
If you have applied for a joint Home Loan, then each applicant is entitled to a deduction of a certain amount. This would mean that you could conceivably save twice the amount of tax deduction on your loan.
If you are unhappy with the terms and conditions of your current Home Loan, you have the option to transfer or refinance your loan through another financial institution. For example, since Bajaj Finserv has the lowest offer on rate of interest, you can consolidate your loan and refinance it there to help you reduce your financial burden.