Home loans have emerged as a great financing option for people looking forward to purchasing a home. Due to the increasing competition in the Banking and Finance sector, a large number of financial institutions are willing to offer loans at competitive interest rates and other attractive features. The popularity of home loans has increased significantly among potential home-buyers in recent times. Moreover, a large number of existing home loan borrowers also opt for top-up home loans to fulfill their additional financial requirements.
The interest rate charged on a top-up home loan is usually lesser than that on a personal loan. Hence, most individuals prefer availing a home loan top-up to meet the additional expenses related to their house. Another advantage of a top-up is that you can avail various tax benefits on the same.
Let us have a look at the tax benefits on top-up home loans
- You can avail tax benefits on your top-up loan only if you have the required documents to prove that the loan taken has been utilized for acquisition/construction/repair/renovation of your residential property.
- Unlike a normal home loan, where maximum deduction available on interest payments is Rs 2 lakh, if the top-up loan has been availed for repairs and alterations, then the maximum deduction that can be availed is of Rs 30,000
- The limit of Rs 30,000 is applicable for a self-occupied house only. In case, the repairs and renovations have been done on a let out property, there is no limit on the deduction that can be claimed.
- The tax rebates on the principal repayment depend on the usage of the funds. If the funds are utilized for the construction or purchase of a new property, the principal along with interest will be eligible for deduction under section 80C and 24 (b) of the Income Tax Act, respectively.
- If the funds are used for the repair and renovation of the property, then no deduction can be claimed on the principal repayment.
Top up loan on home loan tax exemption can be helpful in reducing the repayment burden in the long run.
Dos and don’ts while claiming the deduction
- You can claim a tax deduction on the interest, even if you have missed the actual payment. However, it is always advisable to keep the documents safely in case tax authorities ask you for proof.
- If you utilize the top-up loan for any other purpose like children’s education, family holiday, etc. you won’t be eligible for tax deductions.
While availing a top up loan on home loan from a financial institution, you must carefully assess your income and repayment capacity. Most lenders offer top-up loans readily to their existing customers.
If you have a good credit history, the lending institution may offer up to 70 percent of the market value of the property as a top-up loan. The lender may charge a processing fee for the loan.
If you have failed to make timely repayment of your previous loans, the financial institution may reject your top-up home loan application. Therefore, it is advisable that you check your top up loan eligibility with the help of top up loan calculator before applying for a top up home loan.
Bajaj Finserv Home Loans offers the most competitive interest rates and other lucrative features such as zero hidden charges, less processing fee and instant disbursal of the loan amount.
Also, read about home loans.
Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment, and exclusive EMI store, all under one roof- anytime, anywhere!