Partner With Us NRI

Open Free Demat Account Online with ICICIDIRECT

Tax Benefits on Second Home Loan


Home loans are funds sanctioned by banks to individuals or entities to purchase or renovate a residential property. Factors contributing to deciding one’s eligibility for a home loan include monthly income, existing monthly obligations, age at the time of application of home loan, and retirement age. While income tax benefits on equated monthly payments (EMIs) is common knowledge, tax benefits on a second home loan while the first one is still pending may not be so. Reasons include second-time affordability and the rationale of buying another house on loan. Let’s bust some of the myths of a second home loan and see how it can instead be a strategic move in further enhancing deductions in your income tax.  

What are the types of house property, and how are they taxed?

To understand how a house property is taxed, you need to know its two components – Self Occupied Property (SOP) and Let Out Property. If you use your house property for your residence, it is an SOP; while if you rent it out or keep it idle, it is considered a Let Out Property or ‘deemed to be let out and taxed accordingly.

  • Taxations on SOP and Let Out Property:

    If house property is occupied as your residence, its annual value is computed as nil. That means it is non-taxable. But your other house property, which you got on a second home loan, is subject to tax. If this second property is on rent, then the rental income is taxable. If this second property is deemed to be rented/let out, a notional rent – an assumed amount, not an actual amount, to have earned as rent – is calculated.
  • SOP and Let Out Property under the new tax regime:

    Before 2019, an individual taxpayer could only claim one house as self-occupied and declare any other property as ‘deemed to be let out and hence pay taxes on those. But under the new tax regime, the Finance Act 2019 allows taxpayers to possess up to 2 house properties as self-occupied.

Additional read: What is the difference between a second home loan and a home loan top-up?

Tax Benefits of a second home loan

Why would you consider buying a second home on loan on top of an existing one? Let’s access the actual tax benefits:  

  • Adjustments against rental income:

    The income tax laws allow you to claim deductions on the interest paid against the second home loan. In any given assessment year, this helps an individual taxpayer mitigate their tax burden generated from the rental income from the second house by adjusting against the loan interest. That is even truer when the rental income generated from the second home is less than the interest paid towards that second home. Further, the excess interest paid after adjustment with the rental income from the second house can be carried forward for the next eight consecutive assessment years. It can be adjusted against income from house property only.
  • Benefits in case of joint second home loan:

    A friend, family member, or a spouse can be the co-borrower of the loan and a co-owner of the property. Each borrower cum owner can claim tax benefits on the interest paid towards loan repayment and the rental income. Your EMIs get split, and the tax benefits on the interests paid to get doubled. 
  • No interest cap:

    Unlike the first home loan where a single or a joint borrower can claim deductions on interest up to 2 lakh and up to 1.5 lakh on the principal amount, in the second home loan, the borrower can claim deductions on the interest only. But this is not so much of a disadvantage as there is no interest cap, and the borrower can claim the entire interest amount paid as deductions.

Additional read: Why do women, as co-owners or as individual owners, receive extra tax benefits from home loans?


While obtaining a second home loan alongside the first one may look counter-intuitive at first, a second home loan can instead be a strategic move while claiming deductions in income tax. The new tax laws encourage individuals to buy more house properties on loans while providing allowances to borrowers to save taxes. More house properties also help with a tenancy of citizens who cannot yet afford their own house.


ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  Please note, loans and filing of Tax related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

Most Popular

  • 13 May 2022
  • ICICI Securities

The Five-Point Financial Planning Checklist For Your Family

Whether you just got married or planning to have a baby or have dependents, you should have financial plans for every stage in your life to ensure a secured future for your family members. Here are five things you can do financially for your family.   

  • 12 May 2022
  • ICICI Securities

What is a Zero Coupon Bond?

You get fixed returns in the form of interest until maturity when you invest in a bond. Zero-coupon bonds work a little differently. In this article, find out what zero-coupon bonds are, their advantages and whether you should invest in them. 

  • 12 May 2022
  • ICICI Securities

What are Cross Currency Pairs?

The forex market is the largest financial market globally. Currency trading is a lucrative and booming business. While most currencies trading happens in relation to the US Dollar, some don’t. That forms the basis of cross currency pairs. Here’s what you need to know about it. 

  • 12 May 2022
  • ICICI Securities

Investing principles from Benjamin Graham: The Father of Value Investing

Benjamin Graham was a British born economist, professor, and investor who taught at Columbia University. He was also a mentor to some of the most famous investors of the 20th century, including Irving Khan, John Templeton, & Warren Buffett. Buffett called him "the second most influential figure in his life, only after my father". 

  • 12 May 2022
  • ICICI Securities

How to Invest in Nifty 50?

The Nifty 50 is the benchmark index of the National Stock Exchange. It represents the 50 largest companies listed in India. Investing in the Nifty 50 can be a good idea for those looking to make index-linked returns. Here’s how you can invest in the index. 

  • 12 May 2022
  • ICICI Securities

Investment philosophy of Cathie Wood: The most powerful woman on Wall Street

Catherine Duddy Wood, also called Cathie Wood, is an investor who primarily invests in disruptive technologies and is the founder, chief executive officer, and chief investment officer of ARK Investment Management, LLC, an investment management firm mostly active in the United States.

  • 11 May 2022
  • ICICI Securities

How to Use Technology to Improve Your Finances

Technology has made life simpler for everyone. In the realm of personal finance, technology has streamlined many processes—from budgeting to automating your payments. On National Technology Day, let’s look at how technology has transformed our finances. 

  • 11 May 2022
  • ICICI Securities

How to Invest in your Every Goal with Mutual Funds?

Each of us is unique. We have different needs and goals in life. Some of us can ride along swinging markets, while some may need a relatively conservative investment tool. 

  • 11 May 2022
  • ICICI Securities

Four Reasons Why Entrepreneurs should Invest in Equity Mutual Funds

Equity mutual funds provide growth opportunities not just for individual investors but also for entrepreneurs and corporates. They make excellent investments for anyone looking for wealth creation. This article will give you four reasons why businesspeople should consider investing in equity mutual funds.