Second Home and Income Tax

here are many individuals who wish to buy a second home for certain benefits associated with it. Most apparent of the benefits is its value appreciation over a period of time. Other advantages of owning a second home include a regular income in the form of rentals and its use as a holiday home. It is absolutely essential for an individual planning to buy a second home to know the tax implications associated with it. Under the provisions of Income Tax Act, 1961, if a person owns more than one house for his or her use, then the second house is treated as a let-out and a notional rent is computed, which becomes a taxable income.


In case of an individual owning a second home and the same being let-out to a tenant, the actual amount of rent received is considered as taxable income, subject to certain conditions.

Income tax paid to a municipal corporation or local authority is allowed as deduction in the year for which the amount is being paid. It is necessary for the individual to keep a record of the municipal taxes paid and claim the deduction. A sum equal to 30 per cent of the property's value is allowed as deduction towards repair and maintenance. This is a fixed percentage, irrespective of whether the individual incurs more or less. Another amount that is allowed as deduction is the actual interest paid on the housing loan, whether the second home is considered as let-out or is actually let-out.

If the purchased property is self-occupied, a deduction of Rs. 2, 00,000/- is allowed per year. In case of a property under construction, the interest on home loan is allowed as tax deduction till the completion of construction. Under Section 80C of the Income Tax Act, the principal paid for loan repayment is eligible for deduction up to a maximum of Rs. 1, 50,000/- along with other investments or expenses that are specified. If you sell the house after 36 months, the amount received is treated as long-term capital gains. Exemption can be claimed if the gains are invested to buy another house under section 54.

The gains resulting from the sale of property are required to be deposited in the Capital Gains Account Scheme available in certain banks, if they are not used to buy a new property before the due date of filing income tax return. The funds deposited under the Capital Gains Account Scheme must be used within the due date of return filing to be eligible for exemption. Whether the second house is used as a weekend home, holiday home or a retirement home, the tax implications remain the same.

Hence a second home can be a tax saving opportunity and a great investment as real estate can give you quite good returns. However one should make sure to avail all the tax deductions that a let out property can give you since most of the times a second home is let out and is eligible for huge tax deductions.