Buying a second home is the favorite investment medium of high net-worth individuals. The second home is usually let out on rent, which makes it a win-win proposition. But it’s not as simple as that. If you are considering the options of buying a second home there are certain tax implications which one should be aware of. All the property transaction falls under the umbrella of income tax which means purchasing and selling property is taxable. Residential projects in Pune are becoming a preferred choice of people who want to invest in second homes.
So one has to tread carefully while considering the options of a second home. To start with, it is always advisable to the buyers to take a loan for buying their second home. Taking loans makes you eligible Under section 80 C to avail tax benefits. As home loan is cheaper than other loans and one can avail full tax benefits on the payable interest. Another method which is more prevalent in the middle class Indian families is – joint loan. In case of joint loan both the parties (Father-Son) or (Husband-Wife) can avail the tax benefits if both of them are repaying the loan amount from their own funds.
Usually the second homes are let out on rent by the owners and as rent is an income it is subject to income tax, but you can make it a tool for tax deduction. As the rent is taxable income, if the property is not let out for a single day of the year the notional annual income is considered. This amount equals the amount of rent you would have expected to receive from the property. It is observed in most of the cases, at least for the first 6-7 years, the total of all deductions would be considerably higher than the amount of the rental income.