Is it beneficial to buy a second home?

Suyash, my neighbor heard about his colleagues discussing about tax benefit on buying a second home. He could not understand the implications and approached me. I explained him as follows,

 There are advantages in investing in a second home and some of them are as follows:

  • The interest paid on the second home loan is tax deductible and there is no upper limit unlike the case of self occupied houses where there is a limit of Rs 1, 50,000/- on interest.
  • Second home can generate inflation beating rental income which will be very useful post retirement.
  • Also, it will be convenient to go for Reverse Mortgage on the second house. It will provide tax-free annuity for the remaining period in life.

There are certain disadvantages also:

  • If the house is vacant, now Income Tax Department levies tax on the notional rental income.
  • Wealth Tax is payable on the second house unlike self-occupied houses which are exempted from wealth tax.

Example:

The total income from house property will be considered as (a-(b+c)) as given in the example below. 

Let out  Second home

a) Rental Income ( Annual Value)

Rs. 1,50,000

b) Standard Deduction @30%

Rs. 45,000

c) Interest paid on home loan

Rs. 1,40,000

d)  Loss under “Income  from House property” (a-(b+c))

-35000

 

 

 

 

 

 

 

You can reduce this amount from your taxable income. In case an employer does not allow you to adjust loss, you can claim tax benefit while filing tax returns.   

Suyash got clarity on second – home taxation. 

Last modified on Saturday, 16 November 2013 12:17

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

7 comments

  • Mallory

    posted by Mallory

    Sunday, 28 May 2017 16:48

    Incredible points. Outstanding arguments. Keep up
    the great work.

    Report
  • Sujata Aniruddha Sapkal

    posted by Sujata Aniruddha Sapkal

    Thursday, 27 August 2015 07:59

    Reverse mortgage is very effective tool of getting fix annuity after retirement.

    Report
  • quest bars

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    Tuesday, 12 May 2015 21:17

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  • Fausto Pruiett

    posted by Fausto Pruiett

    Monday, 11 May 2015 00:19

    Say, you got a nice blog article.Really looking forward to read more. Awesome.

    Report
  • Jadhav

    posted by Jadhav

    Saturday, 14 December 2013 16:44

    Nice Article.

    Report
  • Pushpak

    posted by Pushpak

    Monday, 18 November 2013 04:42

    Good update

    Report
  • Sudha

    posted by Sudha

    Sunday, 17 November 2013 05:07

    Great Article!

    Report

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