What is the story about?
As the income tax return (ITR) filing deadline approaches, taxpayers owning a second home need to ensure the property is correctly reported in their returns. Whether the property is self-occupied, rented out or lying vacant determines its tax treatment and the deductions available.
Experts say misreporting additional properties is among the common mistakes made by taxpayers during ITR filing.
While second homes are often bought for investment, retirement planning or lifestyle needs, buyers are evaluating them beyond immediate tax benefits.
Amar Kapoor, CEO of Terra Grande, a luxury second-home and holiday villa brand by the Eldeco Group, said investors are now focusing more on the quality and long-term value of such assets.
Second-home buyers focus on asset quality, not just tax savings
Recent changes in capital gains taxation have led buyers to assess real estate investments more strategically, Kapoor said.
"Among HNIs, UHNIs and NRIs, the investment thesis has evolved beyond short-term tax efficiencies to focus on enduring asset quality, exclusivity and long-term wealth preservation," he said.
According to Kapoor, buyers are looking at factors such as location, limited inventory, architectural distinction, connectivity and the long-term relevance of a destination before investing.
He said premium second homes are being viewed as legacy assets rather than just additional properties. Buyers are seeking properties that offer privacy, exclusivity and a differentiated living experience while also holding long-term financial value.
This trend is also visible in the wider second-home market.
Jason Samuel, Managing Director of House of Swamiraj, a real estate developer and lifestyle brand, said demand for second homes has remained steady despite changes in capital gains taxation.
"While the revised tax structure has encouraged buyers to evaluate returns more carefully, it has not changed the long-term appeal of second homes," Samuel said.
According to him, buyers are giving importance to location, connectivity, infrastructure development, rental potential, developer credibility, legal transparency and future appreciation while choosing a property.
How is a second home taxed in an ITR?
Under the Income Tax Act, 1961, taxpayers can treat up to two houses as self-occupied properties. The annual value of these properties is considered nil, meaning no rental income is added to taxable income.
However, if a taxpayer owns more than two houses, any additional vacant property is treated as a deemed let-out property. In such cases, tax is applicable on the notional rental income the property is expected to generate, even if it is not actually rented out.
Sandeep Sehgal, Partner-Tax at AKM Global, a tax consulting firm, said this is one of the areas where taxpayers often make errors while filing their returns.
Many owners mistakenly report an additional vacant property as self-occupied instead of declaring it as deemed let out, resulting in incorrect income disclosure.
What deductions can second-home owners claim?
For rented or deemed let-out properties, taxpayers can claim a standard deduction of 30% from rental income towards maintenance expenses.
They can also claim deduction for home loan interest against rental income, subject to the applicable provisions of the Income Tax Act.
However, the benefits available can vary depending on the tax regime selected by the taxpayer.
Old vs new tax regime: What should homeowners know?
The choice between the old and new tax regimes can significantly impact taxpayers with housing loans.
Sehgal said under the new tax regime, interest deduction on self-occupied properties is not available. Further, losses from house property cannot be set off against income from other sources, such as salary.
Taxpayers should therefore compare both regimes before filing their ITR to determine which option is more beneficial.
Selling a second home? Keep capital gains tax in mind
Tax implications also arise when a second home is sold.
If the property is held for more than 24 months, the gains are treated as long-term capital gains. Taxpayers can claim exemptions under Sections 54 and 54EC, subject to meeting the prescribed conditions, to reduce their tax liability.
Kapoor said changing tax rules have made investors more conscious of evaluating the overall strength of a property, including its location, scarcity and long-term appreciation potential.
Documents second-home owners should keep ready
Before filing their ITR, second-home owners should keep essential documents such as the registered sale deed, home loan interest certificate, municipal tax payment receipts, rental agreements and co-ownership records ready.
Maintaining proper documentation is particularly important as tax authorities use data analytics to match information reported by taxpayers.
Experts say misreporting additional properties is among the common mistakes made by taxpayers during ITR filing.
While second homes are often bought for investment, retirement planning or lifestyle needs, buyers are evaluating them beyond immediate tax benefits.
Amar Kapoor, CEO of Terra Grande, a luxury second-home and holiday villa brand by the Eldeco Group, said investors are now focusing more on the quality and long-term value of such assets.
Second-home buyers focus on asset quality, not just tax savings
Recent changes in capital gains taxation have led buyers to assess real estate investments more strategically, Kapoor said.
"Among HNIs, UHNIs and NRIs, the investment thesis has evolved beyond short-term tax efficiencies to focus on enduring asset quality, exclusivity and long-term wealth preservation," he said.
According to Kapoor, buyers are looking at factors such as location, limited inventory, architectural distinction, connectivity and the long-term relevance of a destination before investing.
He said premium second homes are being viewed as legacy assets rather than just additional properties. Buyers are seeking properties that offer privacy, exclusivity and a differentiated living experience while also holding long-term financial value.
This trend is also visible in the wider second-home market.
Jason Samuel, Managing Director of House of Swamiraj, a real estate developer and lifestyle brand, said demand for second homes has remained steady despite changes in capital gains taxation.
"While the revised tax structure has encouraged buyers to evaluate returns more carefully, it has not changed the long-term appeal of second homes," Samuel said.
According to him, buyers are giving importance to location, connectivity, infrastructure development, rental potential, developer credibility, legal transparency and future appreciation while choosing a property.
How is a second home taxed in an ITR?
Under the Income Tax Act, 1961, taxpayers can treat up to two houses as self-occupied properties. The annual value of these properties is considered nil, meaning no rental income is added to taxable income.
However, if a taxpayer owns more than two houses, any additional vacant property is treated as a deemed let-out property. In such cases, tax is applicable on the notional rental income the property is expected to generate, even if it is not actually rented out.
Sandeep Sehgal, Partner-Tax at AKM Global, a tax consulting firm, said this is one of the areas where taxpayers often make errors while filing their returns.
Many owners mistakenly report an additional vacant property as self-occupied instead of declaring it as deemed let out, resulting in incorrect income disclosure.
What deductions can second-home owners claim?
For rented or deemed let-out properties, taxpayers can claim a standard deduction of 30% from rental income towards maintenance expenses.
They can also claim deduction for home loan interest against rental income, subject to the applicable provisions of the Income Tax Act.
However, the benefits available can vary depending on the tax regime selected by the taxpayer.
Old vs new tax regime: What should homeowners know?
The choice between the old and new tax regimes can significantly impact taxpayers with housing loans.
Sehgal said under the new tax regime, interest deduction on self-occupied properties is not available. Further, losses from house property cannot be set off against income from other sources, such as salary.
Taxpayers should therefore compare both regimes before filing their ITR to determine which option is more beneficial.
Selling a second home? Keep capital gains tax in mind
Tax implications also arise when a second home is sold.
If the property is held for more than 24 months, the gains are treated as long-term capital gains. Taxpayers can claim exemptions under Sections 54 and 54EC, subject to meeting the prescribed conditions, to reduce their tax liability.
Kapoor said changing tax rules have made investors more conscious of evaluating the overall strength of a property, including its location, scarcity and long-term appreciation potential.
Documents second-home owners should keep ready
Before filing their ITR, second-home owners should keep essential documents such as the registered sale deed, home loan interest certificate, municipal tax payment receipts, rental agreements and co-ownership records ready.
Maintaining proper documentation is particularly important as tax authorities use data analytics to match information reported by taxpayers.
