Tax Deductions on Second Home Loan in India: What You Need to Know

Learn how you can save tax on your second home loan in India. Explore key deductions under Sections 24(b) and 80C of the Income Tax Act, and understand the rules and benefits in detail.

nickolas

Jul 9, 2025 - 11:07

Introduction

Owning a second home is no longer a luxury but a strategic investment for many Indians. While real estate appreciation and rental income are primary motivators, one of the biggest perks that come with a second home loan is tax savings. The Indian Income Tax Act provides several deductions that can help reduce your overall tax liability if you take a loan for purchasing a second property.

Lets break down the tax deductions on a second home loan in India, and understand how to maximize these benefits legally and efficiently.

1. Tax Deductions Under Section 24(b)

Section 24(b) of the Income Tax Act allows a deduction on the interest component of your home loan. For a second home, here are the key points:

Entire Interest Amount is Deductible: Unlike a self-occupied first property (where deduction is capped at ?2 lakh), for a second home (deemed to be let out or actually rented), there is no upper limit on the interest deduction.
Net Loss Limit: However, the total loss from house property that can be set off against other income is capped at ?2 lakh per financial year. Any amount above this is carried forward for up to 8 assessment years.

Example:
If the interest paid on the second home loan is ?3.5 lakh, only ?2 lakh can be adjusted against your income this year. The remaining ?1.5 lakh will be carried forward.

2. Tax Deduction Under Section 80C

Section 80C allows a deduction of up to ?1.5 lakh per annum on the principal repayment of your home loan.

This is not exclusive to the second home; the ?1.5 lakh limit is combined for all investments under Section 80C, including PPF, ELSS, LIC premiums, etc.
The deduction is applicable only if the construction is completed, and the possession certificate is available.
If you sell the property within 5 years, the deduction claimed will be reversed and added to your income in the year of sale.

3. Stamp Duty and Registration Charges

You can also claim deductions under Section 80C for stamp duty and registration charges, subject to the ?1.5 lakh limit. This benefit is available only in the year of payment.

4. Pre-Construction Interest

Interest paid during the construction phase is not deductible in the same year but can be claimed in 5 equal installments from the year of completion of construction. This applies to both the first and second homes.

5. Rental Income and Taxability

If your second home is rented out, the rent received will be taxed under Income from House Property after allowing:

Standard deduction of 30%
Interest on home loan
Municipal taxes paid

If it is not rented out, it will be considered deemed to be let out, and a notional rent will be added to your taxable income.

6. Joint Home Loans on Second Property

If the loan is taken jointly (e.g., with spouse or parent), each co-borrower can claim:

Up to ?2 lakh deduction on interest
Up to ?1.5 lakh on principal (subject to their own Section 80C limits)

Provided both are co-owners and co-borrowers of the loan.

Conclusion

Investing in a second home can offer solid returns and significant tax benefits if planned properly. While the interest deduction under Section 24(b) is a major incentive, it's essential to keep the notional rental income and overall tax liability in mind.