Tax benefit on second home loan

POSTED BY Susmit Sekhar ON February 19, 2013 11:59 pm COMMENTS (3)

Dear Friends
I am aware that on taking a second home loan, one needs to show one property as ‘self-occupied’ and the second as ‘rented out’. While there would be a IT benefit limit of Rs.1,50,000 on the interset for the ‘self-occupied’ home, there is no upper limit on the IT benefit for the interest payed on ‘rented out’ property. Hence, it is profitable to show the property with the higher loan amount as ‘rented out’.
Given the above, my query is as follows:
I am presently in a rented apartment in Hyderabad and have recently invested in a flat in Hyderabad, with a substantial loan. I would probably start living in this new flat after 2 years.
I also have a prior investment in Noida, for which the loan amount is small. This flat is close to completion and I would be putting it on rent.
Even though I would actually be staying in the Hyderabad house and renting out the Noida flat, to get the maximum IT benefit, is it possible to claim my Hyderabad property as ‘rented out’ and the Noida flat as self-occupied (say by my parents). This sounds absurd to me but after reading a few articles on this topic, I am confused as these articles claim that it is completely up to the loan taker to decide which property to show as rented out and which as self-occupied. I would be grateful to receive your kind advice on this issue.

3 replies on this article “Tax benefit on second home loan”

  1. Dear Sumit, please contact me over personal mail. I need to understand your details before commenting any more. As your data ‘ll be personal, I’m asking for personal mail to protect your privacy.

    to get my mail id, please check my profile here in the forum or contact dear manish



  2. Dear Sumit, from the legal angle, this is only possible if you are showing notional rental income from Hyderabad property. Yes it can be done. I do hope the detailed calculations are already with you on how to claim?



    1. Susmit Sekhar says:

      Dear Ashal
      Thanks so much for the prompt response..truly appreciated!

      Since I intend to put the Noida flat on rent, this would mean paying double tax on the ‘actual’ rent received from the Noida flat, as well as on the ‘notional’ rent for the Hyderanad Flat. This double tax would probably be more than the tax I save on the interest payed for the Hyderabad flat.
      However, I still find it unrealistic that I can theoretically put my Noida flat on rent, even give a rent recipt for the same, pay IT for the rent received, and yet claim it as the ‘self-occupied’ flat while claiming home loan IT benefit. Is this correct?


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