Even today, an apartment worth Rs 50 lakh is easily available on rent for Rs 10,000 a month. At the same time, the repayment of principal amount will not be allowed for deduction from your taxable income under Section 80C. Still, as the interest payment on the loan is huge, the rental income does not offset a substantial benefit. Take for example a loan of Rs 50 lakh. In this case, the interest payment in the first year is Rs 3,96,181 and the rental income is Rs 1,20,000. However, only 70 per cent of the rental income gets added to your income. You get a rebate of 30 per cent on rental income against the maintenance of the house. So, in the first year, only Rs 84,000 will be included in your income as the house income.

As you spend Rs 3,96,181 as interest payment and earn Rs 84,000 as house income, you will get a net deduction of Rs 3,12,181 because of your investment in the house. At the rate of 30.09 per cent, you will save a tax of Rs 96,464. Similarly, in the second year, the interest element in your EMI will come down to Rs 3,87,409, while your tax benefit will be Rs 92,456. In the calculation for the second year, the rental income was taken at Rs 10,500 5 per cent more than that in the first year.

Similarly, for the third, fourth and fifth year, as shown in the chart, the tax benefit remains substantially more than when the property is bought for personal use. Income tax consultants pointed out several aspects. "After some years, if you are selling off the second to invest into another property, you will get tax relief on the capital gain as well," said DK Banerjee, a city-based income tax consultant. The global economic slowdown hasn't had much of an effect here. "Unlike in the US and the UK, the Indian market is consumer-driven, making recession a temporary phenomenon here. It will be over by about a year. Therefore, funds permitting, it is always a good option to invest in a second house," said, AK Gupta, a tax consultant.

Some income tax consultants, such as Anirban Roy, however, said it was feasible for people of a certain income level. "It is a good option but only for people of the higher income groups because paying off two loans at a time is not affordable for all," he said. Because of the tax benefit, the effective interest rate on your loan will work out to be 6 per cent instead of eight the rate at which you contracted the loan. The benefit will become even bigger if you buy a house costing more. While the loan amount becomes bigger, the interest amount will be larger. In case of buying the house as an investment, you can avail yourself of the benefit of deduction against the interest payment.