Investing in multiple properties is always considered good but when it comes to filing tax many times a property owner didn’t know various tax implications on those properties. Due to this, at times they fail to submit a tax return on the same in the right manner. However, being a little careful helps in saving you lots of taxes in one go. Scroll down and know the tax implications on your second home.
Being an owner of multiple properties need to take some decisive action during tax filing. Let say, while filing tax, only your first home will be considered as self-occupied property, on the other hand, the second property will fall under the ‘deemed rented out’ category. Because of this, tax calculation on both properties are different and not the same.
Second Home: Tax Calculation
Now, there are various ways through which you can calculate tax on the second property. Some of them are:
- In case the property is rented out, then you have to pay tax on the rent received from it. A standard flat deduction towards maintenance and any interest paid on the home loan for the property is reduced from the rent received to reach the taxable amount.
- In case your second home is self-occupied or vacant, then you have to consider second home as rented and tax will be calculated on the notional rental income that is accounted for after deducting all the taxes.
Second Home: Tax Deduction
- In case of your first home which is a ‘self-occupied’ property, you can claim tax deduction on the home loan’s principal amount as well as interest rate under section 80 C of Income Tax Act. On the other, on the ‘deemed rented out’ property or your second home, you can only claim tax deduction on the interest rate of the home loan under section 80 C of the IT act. However, the good thing is that you can claim the maximum interest on home loan under this.
- Apart from this, all the charges paid to the civic body like house or property tax for the second home can also be claimed under tax deductions.
- You can also claim a flat 30% standard deduction on the maintenance charges of the property. However, the good part is that you don’t have to go for maintenance every year; you just have claimed the deduction just by filing up the form.
Now, let’s understand these deductions via an example:
Suppose you have rented you second home at a monthly rent of Rs 13000. So multiplying it to 12, the annual rent received will be Rs 1, 56,000.
Then, if we consider a standard 30% deduction annually, the outcome will be Rs 45,000 (approx.). After this, if you calculate other deduction like civic body charges it may be approximately 2000 and home loan interest paid is RS 1 lakh.
After all the deductions, the final income of the property generated will be 156,000 – 147,000 = Rs. 9,000
So, a careful approach will help you in saving a lot of taxes on your second home or property.