Can I Deduct 2 Housing Loan Interest in My Income Tax Return for FY 2024-25?

Are you relocating to a new city and considering purchasing a second home through a loan? If so, it is crucial to understand the tax benefits associated with multiple housing loans. Under the Indian Income Tax Act, certain deductions are available for home loan repayments, but the benefits vary depending on whether the property is self-occupied or rented out.

Home Loan Tax Deductions Under the Old and New Tax Regime

As per Section 24(b) of the Income Tax Act, 1961, individuals opting for the Old Tax Regime can claim a deduction of up to ₹2 lakh per year on the interest paid for home loans on self-occupied property. However, the New Tax Regime does not provide any deductions on home loan interest for self-occupied properties.

For let-out properties, there is no limit on the deduction of home loan interest in both tax regimes. However, in the New Tax Regime, losses due to excess interest payments cannot be set off against other sources of income or carried forward to future years.

Tax Benefits on a Second Home Loan for FY 2024-25

If you are considering taking out a second home loan, you may be eligible for tax benefits under different sections of the Income Tax Act. The tax implications will depend on whether the second home is self-occupied or rented out:

1. If one home is rented: Rental income from the second home is taxable under the Income Tax Act. However, you can claim a standard deduction of 30% on the Net Annual Value (NAV) and also claim full interest paid on the home loan as a deduction without any upper limit.
2. If both homes are self-occupied: If neither of the properties is rented out, both are considered self-occupied. In such a case, the total deduction for home loan interest is capped at ₹2 lakh per annum, regardless of the number of houses owned.
3. If both homes are rented out: If both properties are let out, the entire interest paid on both home loans is deductible, without any restriction.

Principal Repayment Deductions Under Section 80C

Under Section 80C, homeowners can claim a deduction of up to ₹1.5 lakh per year on the principal repayment of a home loan. This benefit applies to both first and second homes but is subject to the overall limit under Section 80C, which includes other eligible investments like PPF, ELSS, and life insurance premiums.

Steps to Claim Tax Benefits on a Second Home Loan

To avail of tax benefits on your second home loan, follow these steps:

1. Ensure that you are the owner or co-owner of both properties.
2. Calculate your eligible deductions under Section 80C and Section 24(b).
3. Submit your home loan sanction letter and home loan interest certificate to your employer for TDS adjustments.
4. If TDS has already been deducted without considering your home loan deductions, claim a refund while filing your income tax return.

Conclusion

If you plan to purchase a second home, understanding the tax benefits can help you maximise your savings. While the Old Tax Regime offers substantial deductions on home loan interest and principal repayments, the New Tax Regime limits these benefits. Choosing the right tax regime and structuring your home loans wisely can help reduce your tax liability while securing long-term financial stability. Ensure proper documentation and timely filing to claim the maximum tax benefits on your second home loan for FY 2024-25.

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