Your home is a reflection of your tastes and choices. It is the place you go to relax and rejuvenate after a long day at work. And it is the place where you celebrate the big and little milestones in life. So, it is natural that you will want it to look picture perfect.
A home renovation can give your space the upgrade it needs. But depending on the interior design company you partner with and the kind of renovations you need, the cost of giving your house a facelift can be quite steep. Here is where a home renovation loan can help.
A home renovation loan or a home improvement loan is a type of home loan that you can avail to fund any repairs or renovation that may be needed around your house. You can use the funds borrowed to renovate the interiors and/or the exteriors of your home. This includes things like whitewashing, painting, tiling, flooring, plumbing, and other works.
As with all loans, a home renovation loan can also be repaid over an extended period of time, via EMIs. The EMIs include a principal component as well as an interest component.
When you avail a regular housing loan, it can be used to buy or build your own house property. There are many home loan tax benefits associated with this kind of a loan. Here is a closer look at the tax benefits that regular home loans offer –
Under Section 80C of the Income Tax Act, 1961
Section 80C allows you to deduct the principal component of your home loan EMI from your total taxable income. The upper limit for this deduction is Rs. 1,50,000 each year.
Under Section 24 of the Income Tax Act, 1961
Section 24 allows you to deduct the interest component of your home loan EMI from your income. The limit for this deduction is Rs. 2,00,000 if it is a self-occupied property. However, if the property is let out, there is no limit on the deduction.
Like regular home loans, a home renovation loan can also help you save tax and reduce your tax liability. Section 24 of the Income Tax Act, 1961, is relevant here. According to this section, you can claim a deduction of up to Rs. 30,000 per annum on the interest component of the home renovation loan EMI.
This is a part of the deduction limit of Rs. 2,00,000 that is available for regular home loans. Let’s take up two scenarios to understand this better.
So, let’s say you have availed a home loan for the purchase of a house property, and you pay Rs. 1,80,000 as interest during the financial year. Additionally, you also have a home renovation loan, for which the interest paid comes up to Rs. 25,000 during the year.
This means you pay total interest of Rs. 2,05,000 during the year. Of this, you can only claim home loan tax benefits up to Rs. 2,00,000.
On the other hand, let’s say you pay Rs. 1,00,000 as interest on your regular home loan, and an additional interest of Rs. 40,000 on your home renovation loan during the financial year.
This means you pay a total interest of Rs. 1,40,000 during the year. Of this, you can only claim home loan tax benefits up to Rs. 1,30,000. The breakup for this is as follows –
- Rs. 1,00,000 on your regular home loan (since the limit allowed is Rs. 2,00,000)
- Rs. 30,000 on your home renovation loan (since the limit allowed is Rs. 30,000)
Now that you know the home loan tax benefits you can claim when you borrow to renovate your home, you can rest easy knowing that despite the high costs of renovation, you can get some financial relief. Plan your borrowings in such a manner that you can make the most of the home loan tax benefits available for the different kinds of home loans in India.