How to Claim Income Tax Benefits for Having Multiple Houses?

A Guide for Multiple Homeowners Maximizing Tax Benefits:

Owning multiple houses can be both a sign of financial stability and a strategic investment. However, navigating the tax implications can be complex.

The Indian Income Tax Act provides several provisions to help property owners optimise their tax liabilities through deductions and exemptions. Filing your Income Tax Return (ITR) correctly and understanding tax rules for multiple properties are crucial for claiming these benefits.

This guide will help you understand the home loan tax benefit for second home, the rules for multiple home loan tax benefits and how to claim tax exemption on multiple home loans effectively.

Understanding Income Tax Rules for Multiple Houses

What is ITR and Its Purpose?

An income Tax Return (ITR) is a document filed annually with the Income Tax Department detailing an individual’s income, expenses, deductions and tax liabilities. It serves two critical purposes:

1. Compliance with the Law: Filing an ITR ensures that you declare your income and pay taxes according to government regulations.
2. Financial Planning: Proper filing can help reduce tax burdens through deductions, especially if you own multiple properties.

Income Categories Under ITR

When filing ITR, your properties can fall under the following categories:

1. Self-Occupied Property: A house used as your residence.
2. Let-Out Property: A house rented to tenants.
3. Deemed Let-Out Property: If you own more than two houses, any additional properties are deemed let-out for tax purposes, regardless of whether they are rented.

By understanding these categories, you can structure your property holdings to maximise the tax benefit on 2nd home loan and beyond.

How to Get Tax Benefits on a Second Home Loan

Owning a second home can provide additional tax benefits under specific sections of the Income Tax Act. Here’s how you can claim tax benefit on second home loan:

1. Interest Deduction Under Section 24(b):
   • You can claim a deduction of up to ₹ 2 Lakh per annum on interest paid for home loans for a self-occupied property.
   • There is no upper limit on interest deduction for let-out or deemed let-out properties, provided the total loss under the "Income from House Property" category does not exceed ₹ 2 Lakh in a financial year.
2. Principal Deduction Under Section 80C:
   • Under Section 80C, a principal repayment of up to ₹ 1.5 Lakh can be claimed as a deduction. This applies to both the first and second homes, provided the properties are not sold within five years of purchase.
3. Tax Deduction for Joint Loans:
   • If the second home loan is taken jointly, each co-borrower can claim the deductions separately, effectively doubling the tax benefits.

These sections provide significant opportunities to reduce your tax liability when managing multiple home loans.

How to Calculate Tax Benefits on a Second Home Loan

Calculating tax benefits on a second home loan involves understanding the breakup of principal and interest components in your EMI. Follow these steps:

1. Get an Amortisation Schedule:
   • Request an EMI amortisation schedule from your lender, which details each EMI's principal and interest components.
2. Categorise the Property:
   • Determine whether the second home is self-occupied, rented, or deemed let out. Tax benefits vary based on the property type.
3. Calculate Interest Deduction:
   • For self-occupied property: Cap your interest deduction at ₹ 2 Lakh under Section 24(b).
   • For rented or deemed let-out property: Deduct the entire interest paid, subject to the ₹ 2 Lakh loss cap.
4. Calculate Principal Deduction:
   • Add up the principal portion of your EMIs to claim deductions under Section 80C.
5. Adjust Rental Income (if applicable):
   • Deduct 30% of the rental income as a standard deduction and subtract interest paid on the loan.

By following these steps, you can calculate and claim multiple home loan tax benefit accurately.

Steps to Claim Tax Benefits on Second Home Loan

To claim tax benefit on 2nd home loan, ensure you follow these steps:

1. Maintain Proper Documentation:
   Collect loan sanction letters, EMI statements and property ownership documents.
2. Categorise Properties:
   Identify which properties are self-occupied and which are rented or deemed let-out.
3. File ITR on Time:
   Ensure you declare rental income, if any and claim deductions under sections 24(b) and 80C.
4. Consult a Tax Advisor:
   If managing multiple properties, seek expert guidance to ensure compliance and maximise benefits.

How to Maximise Tax Savings with Multiple Houses

Here are some tips to maximise savings on tax exemption on multiple home loans:

• Opt for Joint Loans:
  If possible, take a home loan jointly. This allows all co-borrowers to claim deductions individually.
• Rent Out Additional Properties:
  Letting out additional properties generates rental income and opens up unlimited interest deductions under Section 24(b).
• Leverage Section 80C:
  Use the ₹ 1.5 Lakh limit under Section 80C for principal repayment, especially for multiple loans.
• Plan for Deemed Let-Out Properties:
  Strategically declare properties as self-occupied or deemed let-out to minimise tax liability.
• Capital Gains Planning:
  When selling a house, reinvest the gains in another property under Section 54 to claim capital gains exemption

Implementing these strategies can significantly reduce your tax liability across multiple properties.

Capital Gains Tax Benefits When Selling Property

When selling a property, you may incur capital gains tax, but the Income Tax Act offers relief through specific sections:

• Section 54:
  The capital gains are exempt from tax if you sell a house and reinvest the gains in another residential property within two years.
• Section 54EC:
  Invest the gains in specific bonds (e.g., NHAI or REC) within six months of the sale to claim exemption.
• Indexation Benefits:
  For long-term capital gains, indexation adjusts the purchase cost to account for inflation, reducing taxable gains.

Understanding capital gains deductions on second home helps property owners minimize tax outflows when restructuring their portfolios.

Conclusion

Owning multiple houses can offer both financial security and tax benefits. By leveraging provisions like the home loan tax benefit for the second home, the tax benefit on the second home loan and the housing loan interest tax exemption section, you can significantly reduce your tax liability.

Proper planning, timely filing of the ITR and consulting with tax experts are essential steps in maximising savings and staying compliant with tax regulations.

FAQ’s

1. Are there tax benefits for joint ownership of multiple houses?

Yes, each co-owner can claim tax benefits individually on the principal and interest portions of home loans, provided they are joint borrowers.

2. What documents should I keep to claim tax deductions for multiple properties?

Keep loan sanction letters, property ownership proofs, EMI statements and rental income records.

3. Can I claim tax deductions for both self-occupied and rented properties?

Yes, depending on the property type, deductions are available under Section 24(b) and Section 80C.

4. Can I avail of capital gains exemptions when selling a house and buying another under Section 54?

Yes, reinvesting the gains in another residential property qualifies for exemption under Section 54.

5. What are the benefits of filing the ITR for my home loan on time?

Timely filing ensures you can claim all eligible tax deductions and avoid penalties.

6. Can I claim a standard deduction of 30% on rental income for multiple houses?

Yes, 30% of the rental income is allowed as a standard deduction under the "Income from House Property" category.