Refurbishing your home you so fondly built once is imperative. Change is inevitable; therefore, we need to modify our house to make room for changes. Building a house requires time and money investment both but so does remodelling it. If the thought of arranging money yet again is holding you back from a makeover, house renovation loan can help.
In addition to helping your recreate your dream house, these loans offer excellent tax benefits too. You enjoy a tax deduction grant of up to Rs. 30,000 per annum on the interest charged on home improvement loans. This is why applying for a loan to renovate your house can actually do you more good than you’d think.
Before jumping on to tax benefits, here’s a brief on what the Income Tax Department deems as home improvement. Remember, not every minor upgrade in your house falls under this category, so it’s better to be clear.
Home Renovation Loan: What Does it Cover?
The Income Tax department of India deems only the following as home improvement when considering tax deductions against such loans:
- Renovation of an existing house structure
- Construction of a new area in the existing home
To elaborate on the above, an individual can apply for loan for constructing a new balcony or extending a particular room or floor. However, the concerned building authority would first need to sanction the construction of an extra floor.
As for renovation, painting of house and re-flooring or re-tiling of kitchen and bathrooms are all covered under home improvement. Besides that, major plumbing or significant upgrades to the house may also be considered worthy of the loan application.
The following details what’s not covered under the house renovation loan umbrella:
- Purchase of consumer durables – furniture or home appliances
- To purchase and install security systems at the house
- Purchase of kitchen appliances and readymade cabinets (cabinet construction may be included)
Housing Loan Tax Exemption
Section 24 of the Indian Income Tax Act, 1961 makes the interest payable on a house renovation loan tax-deductible. The section offers a deduction of Rs. 30,000 p.a. as part of the total tax benefit of Rs. 1,50,000 p.a. This means that tax benefit would apply to both the interests payable on home loan and home improvement loan.
In this case, the combined limit for a tax deduction on both the interests payable on both the loans is Rs. 1,50,000. To cite an example, a person pays Rs. 1,20,000 or lower p.a. as interest on the home loan. He’ can still enjoy a maximum home improvement tax benefit of Rs. 30,000 p.a.
Most important, note that Section 80C of the IT Act provides tax exemption in case of housing loans. However, tax benefits aren’t applicable on the principal amount of home improvement loans under this section. Besides that, you cannot claim a tax deduction for luxury upgrades like the construction of fireplace/swimming pool etc.
With the home improvement tax benefit, you have all the more reason to go ahead and redesign your dream house.
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