Many homebuyers start a second loan while continuing to repay an existing housing loan, especially when they buy another property for investment or rental income. Taking two home loans, though, does not automatically mean double tax benefits.
While there is no general legal limit on the number of residential properties a person can own or home loans they can take, the Income Tax Act places specific conditions and limits on how these properties are taxed.
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The deductions depend on whether a house is self-occupied or let out, the interest paid on the loans and whether the taxpayer has opted for the old or new tax regime.
Multiple Home Loans Depend On Repayment Capacity
There is no blanket rule that limits an individual to one or two home loans. A person can take multiple housing loans if the lender is satisfied with their income, credit profile, existing liabilities and repayment capacity.
Taking another loan does not mean that the taxpayer will automatically receive a separate set of tax deductions for each property. The available benefits depend on the nature and use of the properties.
Under the old tax regime, interest paid on loans for eligible self-occupied properties can be claimed as a deduction under Section 24(b).
The maximum deduction for interest on home loans for self-occupied property is Rs 2 lakh per financial year. This is an overall limit and does not become Rs 2 lakh separately for every home loan.
Tax rules also allow an individual to treat up to two houses as self-occupied. Additional properties may be treated as deemed let-out properties for tax purposes.
For let-out or deemed let-out properties, interest paid on the housing loan is generally considered while calculating income from house property.
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House Property Loss Set-Off Is Also Limited
Multiple home loans can result in a larger interest outgo and, consequently, a loss under the head “Income from house property”. This loss cannot be freely adjusted against income from other sources.
Under the old tax regime, the amount of house-property loss that can be set off against income under other heads in the same financial year is capped at Rs 2 lakh.
Any remaining eligible loss can generally be carried forward for up to eight assessment years and set off against income from house property in subsequent years, subject to the applicable rules.
Rs 1.5 Lakh Section 80C Limit For Principal Repayment
The tax benefit on repayment of home-loan principal is also subject to a limit. Home-loan borrowers can claim a deduction for eligible principal repayment under Section 80C under the old tax regime.
Section 80C has a combined annual limit of Rs 1.5 lakh in a financial year. This limit covers several eligible investments and payments, including qualifying home-loan principal repayment. Taking a second home loan does not increase the Section 80C limit to Rs 3 lakh.
What Changes Under New Tax Regime?
The new tax regime provides fewer deductions related to home loans.
Principal repayment of a home loan does not qualify for the Section 80C deduction under the new regime. Moreover, interest paid on a loan for a self-occupied property is not available as a deduction under the new regime.
For let-out property, interest deduction is governed by the applicable provisions. The resulting loss from house property also has restrictions on how it can be adjusted against other income.
Having two home loans is therefore possible, but the tax benefits cannot simply be multiplied based on the number of loans. The tax treatment ultimately depends on the number of properties, their occupancy status, the purpose of the loans, the interest and principal paid, and the tax regime selected by the taxpayer.
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