While purchasing a home is one of the most critical decisions, renovating it is an equally crucial task. Owing to the significance of a house, it is imperative to maintain both its aesthetic and constructional qualities for which, most of the individuals wait till they have just the right amount of money to reconstruct or renovate their house.
However, reconstructing a home or repairing it doesn’t have to take so much time. You can simply acquire a home improvement loan and renovate to make a contemporary yet comfortable looking space. This loan can be acquired on lower interest rates along with various tax deduction benefits.
But, before we explore the nuances and benefits of tax deduction on home improvement loans, it is necessary to understand how the income tax department defines home improvement.
How Income Tax Department Defines Home Improvement?
Home improvement as defined by the income tax department means construction or renovation of your house. This may include making a new room, extending the balcony, or retiling the floor. However, this loan can’t be acquired for a security system or for buying appliances and furniture.
For instance, if you are restructuring your kitchen, the construction part may be covered by the loan but appliances are not. Even cabinets are excluded from a home improvement loan.
Tax Deduction Benefits of Home Improvement Loan
The benefits of tax deduction on home improvement loans are applicable when the loan is acquired for construction purpose, repair work, or renovating. However, it is necessary to note that the other luxury essentials such as swimming pools or fireplaces are excluded from the tax deduction.
Although the benefits of tax deduction on home improvement loans can’t be availed under Section 80C, loan interest benefits under Section 24 are:
- INR 30,000 per annum deduction limit under Section 24 – only for individuals staying in own house.
- If a loan for purchase or construction has also been acquired previously, then combined interest limit varies. For construction or acquisition before 1st April 1999, the combined deduction is INR 30,000. For construction or acquisition after or on 1st April 1999, the combined deduction is INR 1,50,000.
- Since Section 80C doesn’t offer benefits on home improvement loans, no deduction is allowed on the principal acquired amount.
Other Related Benefits of Home Improvement Loan
The major benefit of home improvement loan lies in tax deduction benefits. But, there are various other advantages of taking a loan for home renovation.
While taking a personal loan may lead to higher interest rates, a home improvement loan can be acquired on the same interest rate as the home loan. Paying lower interest rate turns out to be highly rewarding for long-term loans.
The paperwork is minimum if you acquire the loan from the same bank which has approved your home loan. Most banks will conduct the necessary property inspection along with rechecking of the document and loan history. Considering all these factors, your loan will be cleared quickly and the documentation involved will be comparatively less.
The loan won’t restrict your home improvement work. You can use it to extend the balcony, room, make a new room, kitchen, bathroom, and other necessary repair work. Home improvement loan is a type of secured loan which provides the flexibility of continuing improvement work as per your requirements.
Things to Consider
Before approaching the bank for a home improvement loan, remember to keep these things in mind:
- Hire a professional to give you an estimated amount needed for repair. Usually, banks clear 85% or more of the quoted amount. However, you still need to place a fair quote.
- To avoid last minute hassles, keep the documents like application form, income proof, address proof, etc. ready.
- You can only get a loan for alterations, construction, repair, and renovation.
Due to the tax deduction benefits of home improvement loans, you can save a considerable amount of tax on your income. However, ensure that you are prepared for the loan to avoid rejection from the bank. Keep all the necessary documents ready, get an estimated budget, and then approach the bank.
With Finserv MARKETS, applying for a personal loan is easy, quick and completely hassle-free. What’s more? You can avail a plethora of benefits such as attractive interest rates, EMI holiday and more! So why wait? Apply for a personal loan with us, today!
Also read what are the other tax benefit on personal loan?
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