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What is the tax benefit in home improvement loan?

Priya Negi

At some point in your life, you may want to make changes to your home. Home improvement can mean remodelling your house structure, making repairs, or completely repainting it. However, financing home renovation can put a burden on your finances. 

If you do not want to dip into your savings or investment, you can apply for a home renovation loan to manage your finances. You can modify, refurbish, or renovate your house without putting any financial burden on your shoulders. You can secure a loan amount based on your property’s value in the market. With affordable interest rates and flexible loan tenure, making timely repayments is easy and convenient. 

Tax benefits of a home improvement loan

It is worth noting that the interest payable on loans taken for home renovation are tax-deductible up to Rs. 30,000/- per annum.  The process of applying for a home renovation loan and getting the tax benefits are simple. 

Before we delve deep into the idea of tax deduction under the Income Tax Act and all the technical financial terms, it is imperative to understand what a home renovation means and everything that comes under it. Since you know that adding a mirror to your bathroom wall or a toothbrush holder in your bathroom improves your life, but is it covered under home improvement?

Home improvement based on the Income Tax Department

The amount payable against the home improvement loans is tax-deductible. Keep in mind that is also tax-deductible even if it is paid directly to the homeowner. 

Home improvement refers to any renovation and construction work done to your home. It includes making a new balcony, adding a room or a floor, extending a room, painting, re-flooring work, re-tiling of the bathroom, or all types of plumbing work. It is worth pointing out that adding a floor is subject to permission from the housing society. 

Home improvement loans can not be taken to buy consumer durable goods, such as furniture or appliances for your home like security systems. But, if there are installations and construction work required, your lender may approve your loan application.  If you remodel your kitchen, the construction may be included in your loan, but the appliances and kitchen cabinets will not be included. You will have to finance their cost from your pocket. 

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Tax deduction for home improvement under the Income Tax Act

A tax deduction is not only applied to people who purchase or construct a house, but it also includes loans taken for repair work and renovation such as painting the walls, etc. However, it is crucial to understand that the purchase of luxury items like fireplaces and swimming pools is not eligible for tax deductions. 

Under section 24 of the Income Tax Act, 1961, the interest payable towards a home renovation loan is eligible for tax deductions of up to Rs. 30,000/- per annum. It forms a part of the tax benefit of Rs. 150,000/- available under this section for the interest paid on home loans.

The said amount falls within the limit of Rs. 200,000/- interest payment of self-occupied homes. In other words, you can get a tax deduction of up to Rs. 200,000/- on home loans and home renovation loans. Out of the said Rs. 200,000/-, you avail yourself of up to Rs. 30,000/- on your home renovation loan. The benefit of it is that you can significantly lower the overall cost of borrowing. 

How to apply for a home improvement loan in India?

If you are planning to apply for a home improvement loan in India, here are the steps to follow: 

  • First of all, you will need to estimate how much you need for the construction, repair, or rework. 
  • Make sure to have a home renovation plan in writing and submit it to the bank. 
  • Your lender may offer up to 80-90% of the amount you have listed in your renovation plan. 
  • After submitting your application, your lender will evaluate your repayment capacity through income and credit score. They establish whether or not you can repay the loan on time. If everything is in proper order, the sanctioned loan amount will be credited to your bank account. 
  • At times, your quotation may not get rejected, but certain enlisted costs may not be included. Therefore, it is crucial to read the brochure, terms, and conditions of the home improvement loan carefully before making an application.
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Keep these tips in mind and apply for a stress-free and easy home improvement loan. 

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