The trend of buying second house is on high. It is mostly bought for the purpose of investment or sometimes for re-location. However if a person has enough capital then he/she would not think much before owning a second house. Its a perfectly safe bet because you can give it for rent or just leave it as it is; the property prices will appreciate without any fear. But talking about second home is much easier than to buy it. There are increased expenses dangling from it and long term payment obligations. But in this hustle what we generally miss is to ponder on the tax implications that will be flashed upon us. So let’s see the kinds of tax implications we should know before going for a second home.Is it a self-occupied property?According to law, a property is called a self-occupied property if:
- It is bought for the use as a place of residence for the owner.
- Never let out from one year to anybody.
- The owner doesn’t get any extra benefits from the house.
If the second house follows any one of them then it is a self-occupied property. Otherwise your property will not be treated as self-occupied.Is it a lent-out property?If the property doesn’t go with any of the three norms mentioned in the above points then the property is said to be a lent-out property. If you have 3 properties and you live in one of them then the other two will come in the lent-out properties category.Tax implicationsIf you are taking home loan for a self-occupied property (majorly the home in which people settle down) then under Section 80 C, principal amount repaid up to 1 lakh qualifies for deduction. Also under Section 24, interest amount up to 1.5 lakhs qualifies for tax deduction.However if you are buying a second house, there is no such amount from the principal is eligible for deduction. However on the interest payment (with no upper cap), deductions can be availed. If you are paying 2 lakhs as a part of interest then on the whole amount deductions on tax is possible. Also if the house is under construction then 20% of the total interest paid during the pre-construction period eligibles for the tax deduction.Also, the second house qualifies for wealth tax. 1 percent of value is levied if net wealth exceeds Rs 30 lakhs.When the second property will fall hard on you?Imaging your earning from the second house through rentals is Rs 2,00,000 per annum and the tax deductions at 30 percent equals to Rs 60,000. While you have to pay the loan back which amounts to Rs 1,80,000 per annum.Let us calculate this:Net profit=2,00,000-60,000-1,80,000= -40,000Here there is no profit because the amount is going in minus. This amount will be paid from your pocket. If you have enough bank balance/salary then its fine, but if you stumble then it may fall hard on you.When it will benefit you?If you have paid the total home loan amount then it will start reaping benefits for you (through rentals). For this you have to wait for couple of years. Otherwise if you have not given the house on rent but your parents are residing in it then there are no major benefits other than the appreciation. займ на карту без отказов круглосуточновзять кредит онлайн