If you decide to purchase a second property with another home loan, you can avail deductions up to INR 2 lakh on the entire interest amount paid on both your home loans. In case you rent out the second property, this deduction can be claimed against the rental income as well, in addition to the standard deductions for rental income.
If the second property is not given on rent, then it will be deemed to be self-occupied. Under the income tax laws, you can have two residential houses as self-occupied. If you own and occupy two houses, the deduction against interest payment is restricted to INR 2 lakh per annum for both the houses taken together.