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How to avail tax benefit for housing loan interest on your second house, while also enjoying it for your first? 

            The tax benefits that can be availed of in respect of a housing loan can be broadly categorized under two heads. 

  • Firstly, interest paid on the housing loan, borrowed from any agency including a private source, is deductible under Sec.24(b) while  computing  the  income under  the  head  ‘House  Property’.
  • Secondly, repayment of the principal amounts of a housing loan borrowed from specified sources is eligible for income-tax deduction under Section 80C of the Income-tax Act. 

            In the case of a let-out house property, where the interest paid is eligible for set off against the rental income, there is no monetary ceiling for the maximum amount of interest that can be claimed as a deduction.

           However,  in the case of one self-occupied residential  house whose  annual  value is treated as ‘Nil’, the  maximum  amount  of interest that can be claimed as a deduction is Rs.1,50,000/- per annum.


            The benefit of deduction in regard to interest on housing loan need not be restricted only to one house and it is available in respect of every house owned by a taxpayer.  However,  if  a taxpayer  owns  more  than one self occupied  house,  the  special benefit  of adopting the annual value of the house as ‘Nil’, would be  available only in respect of one house of his choice  and  the other  house  or  houses though not let out, would  be  deemed  as having  been let out, and the fair rental value of the same  would be  required  to be taken as the annual value  against  which  the interest  paid can be deducted. Again as explained above, if such house is deemed as let out, there is no monetary ceiling in regard to the maximum amount of interest that can be claimed. 

             Moreover, in case of a house deemed to be let out, 30% of the net annual value (which would be the fair rental value reduced by municipal taxes levied on the house) is further eligible as a standard deduction.

             As regards the benefit of Income-tax deduction under Section 80C in respect of repayment of the principal amounts of  housing  loan taken for investment in a residential house,  this benefit is available, only where such housing loan is borrowed from the  Government, any bank or co-operative bank, LIC,  any  housing finance  company or co-operative society, or from  the  taxpayer’s employer  which  is  either a public  company,  college or  university,  local authority or a co-operative society.  Such deduction from Gross Total Income, can be availed of in respect of a maximum repayment amount of up to Rs.1,00,000 in a year.

Illustration: Gharwala had purchased his first house in 2010 taking a loan of Rs.15,00,000 on which he is required to pay interest of Rs.1,50,000. In 2012, he purchases a second house obtaining another housing loan of Rs.25,00,000 on which he has to pay interest of Rs.2,50,000.  The net annual value of the first house is Rs.72,000 and that of the second house is Rs.1,20,000. Both the houses are self occupied.

In this case Gharwala should show the second house as deemed to be let out and against the net annual value of Rs.1,20,000, he should claim 30% standard deduction of Rs.36,000 and also claim the full interest deduction of Rs.2,50,000, thus showing a deficit of Rs.1,66,000 (1,20,000-36,000-2,50,000). In respect of his first house he can show the annual value as ‘Nil’ and claim the deficit of Rs.1,50,000 in respect of the interest paid.

Thus he can effectively claim set off for Rs.3,16,000 (1,66,000+1,50,000) against his other taxable income, apart from the benefit of deduction of up to Rs.1,00,000 under Section 80C in respect of repayment of principal.

 Considering that Gharwala is in the top tax-bracket of 30.9%, he can reap a cool tax saving of Rs.1,28,544 (@30.9% of 3,16,000 + 1,00,000) on the above deductions.

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