It is risky to buy a property in different city and then letting it out. However, the risk reduces considerably when one has taken a home loan. The benefits increase many fold especially in terms of the tax benefit on principle and interest component of home loan.
Under section 80C, one may claim deduction of up to Rs 1,00,000 on taxable income paid for the principle component of the home loan. The condition is that person should be living in the house or living in another city for the purpose of work or business. So, if you own/rent one house in the city of your work, you may buy another in adjoining city to gain maximum benefit.
Under section 24, one may claim deduction of up to Rs 1,50,000 on taxable income paid for interest component on home loan. There is no limit on the number of houses but one can claim for maximum Rs 150,000. The limit gets increased to unlimited if the property has been let out. In this case, the person needs to declare the income earned as rent and subtract the interest paid as loss. A person may even claim for interest paid before occupying the property (pre-EMI) in five installments in subsequent financial years.
Would you like to add any more advantages or disadvantages of taking a home loan on property?