Second home loan : need help

Tax planning 852 views 5 replies

Patil

Engineer

25 Points Joined December 2013

I am planning to buy a second home; hence I would be taking second home loan as currently I have one home loan for the flat in which I currently stay. I am looking for second home to be available after 2 to 3 years from now. Below are the rough details of my 1st home loan and possible 2nd home loan:

1st Home loan: Interest Rate: 11.75% Interest Component < 1.5 lakhs/annum, Principal Component > 1.00 lakhs/annum.
2nd Home loan: Interest Rate: 10.1 to 10.5%, Loan amount would be around 50 - 65 lakhs.

I need advice with respect to tax planning for my investments, below are the options I have with me with respect to home loans:

With current savings available close current home loan and take fresh home loan for second home. The only advantage by this option I see is that I have to pay only one EMI. Disadvantage I can see it that: Can’t claim housing loan interest component for tax exemption.
Keep current loan and take new loan for 2nd property for lesser amount (may be 10 lakhs less). Advantage: Can claim housing loan interest component for tax exemption from first loan. Disadvantage: total EMI will be higher, total payment to bank is higher.

Please note that I fall under 30% taxable income bracket. Please help me with above two options, or suggest if any other options available.

Thanks in Advance !

Replies (5)

Guest

I think you should go with option 2.

1) you will get tax deduction for H Loan interest

2) It might look that it is giving you benefit of interest savings if you discharge the old loan (11.75-10.1%), but in your old loan the interest component will be lower now and in your new loan the interest component will be high in the EMI for the 1st few years.

3) After you take possession of your new flat in 2/3 years, you can give it on rent and still claim interest deduction without any limit.

Patil

Engineer

25 Points Joined December 2013

Originally posted by : Madhavi Pandit
	I think you should go with option 2. 1) you will get tax deduction for H Loan interest 2) It might look that it is giving you benefit of interest savings if you discharge the old loan (11.75-10.1%), but in your old loan the interest component will be lower now and in your new loan the interest component will be high in the EMI for the 1st few years. 3) After you take possession of your new flat in 2/3 years, you can give it on rent and still claim interest deduction without any limit.

Thanks a lot Madhavi for your valuable reply. I have a small query with respect to last point in your reply. Acutally my plan is to use my second house for self and gift my current home to my parents or rent it out. In this case will I be able to able to claim interest deduction without any limits ?

Guest

Interst deduction without limit is available only for let out property. for self occupied house only max 1.5 l deduction is available. You can choose which house you want to treat as self occupied during any year.

CA Prakash

Chartered Accountant

475 Points Joined March 2007

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