As per reports, the number of home loans disbursed grew up to 16% in the financial year 2018. Home loans are secured advances with end-user restrictions. The loan amount sanctioned can only be utilised either for the purchase or renovation of a property owned by the borrower/s.
Home loans provided by leading borrowers often come with the additional facility of a top-up loan. A top-up is an unsecured advance sanctioned over and above the existing home loan to enable the borrower gain access to a larger pool of funds.
Both these loans come up with numerous tax benefits which primarily differ between their usage. As such, there are specific tax benefits that come with home loans for renovation.
You can claim home loan tax benefits under Section 80C and Section 24 of the Income Tax Act as per the following –
- Section 80C
Under this section, you can claim tax exemption for the amount paid against the principal amount of your home loan top-up. Deductions of up to Rs. 1.5 Lakh can be claimed at the end of each year while filing your returns. However, the deductions will be overturned in case you sell the property within 5 years of purchase.
- Section 24
Under Section 24, you can claim home loan tax exemption of up to Rs. 2 Lakh for the amount payable as interest. In case of top-up credits, the deduction limit is fixed at Rs. 30,000. A detailed info on market-ready exemptions –
- Tax deduction limit on a home loan – Rs. 2 Lakh.
- Tax deduction limit on top-up loan – Rs. 30,000.
- Interest payable on a home loan – Rs. 50,000.
- Interest payable on top-up – Rs. 10,000.
As per the above data, the total interest payable is Rs. 60,000. As the limit is of up to Rs. 2 Lakh you can claim deductions of Rs. 60,000.
Alternatively, if the interest payable on a home loan is Rs. 2,10,000 and the interest paid on your top-up loan is Rs. 50,000, the total amount payable as interest will be Rs. 2,60,000. As per the taxation rule you can claim deductions of up to Rs. 2 Lakh and the remaining amount (Rs. 60,000) will be taxable as per your income tax slab.
How can you claim tax benefits?
To claim tax benefits on your top-up credit, you are required to prove the end-usage of the amount at the time of income tax filing. If the amount has been used to renovate or repair your property, the above mentioned tax benefits can be claimed.
Other ways how you can benefit from a top-up loan are –
- Hassle-free process – Being an existing customer of your lender you do not have to go through hefty paperwork. Also, the disbursal is much easier as your documents and credit reports already lie with your lender.
- Extended tenure – While you avail a top-up loan, your lender might extend your loan tenure for 1 to years which will ease the repayment procedure.
Home loan features you should look for
NBFCs like Bajaj Finserv offers such top-up loans at an attractive interest rate with a substantial loan amount of up to Rs. 50 Lakh along with no end-usage restrictions, prepayment and foreclosure charges, online account access and other convenient features.
While determining your top-up loan amount, your outstanding dues will play a vital role. Hence, you must pay your EMIs on time to ensure a substantial top-up loan amount. Fulfil your financial needs with a top-up loan and be well informed about the tax exemptions available on it to make further savings.