A usual home loan provides tax benefits such as deduction of up to Rs. 1.5 lakh on principal repayment as per section 80C of the Income Tax Act and up to Rs. 2 lakh in respect of interest payment in a financial year under section 24. Also, if you have taken a top-up on your home loan, you can claim tax benefit. But before we will understand what a top-up loan is.
What are top-up home loans?
These top-up loans are offered by banks to its existing home loan customers. And the rate of interest on these loans is usually lower than what the customer would have to shell out in the case of personal loans. Some of the financial institutions extend such a loan to be exclusively used for renovation or repair of the house while others also disburse it so as to be used for any purpose such as for funding a vacation, education, daughter’s marriage etc.
Tax benefits on top-up home loans
Deduction on interest payment against a top-up home loan taken for repair or alteration is Rs. 30,000. And it should be noted that the available deduction on interest is within the total limit of Rs. 2 lakh.
Illustration: Suppose you pay an interest of Rs. 32,000 on a top-up home loan then on this amount you are allowed a maximum deduction of Rs. 30,000. Further, if you have made any interest payment on a regular home loan that will be deducted from the balance Rs 1.7 lakh (Rs 2 lakh minus Rs 30,000). So, the total deduction on interest payment on home and top-up loan in a financial year is Rs. 2 lakh.
Also, the deduction limit of Rs. 30,000 for interest payment on top-up loan is available for a self-occupied house only. And in case renovation and repair is undertaken at a let-out property, there is no limit on the deduction that can be claimed. Any interest payment over and above Rs 2 lakh in a financial year will have to be carried forward up to eight years
Pre-requisites for claiming tax benefit on top-up home loan
You need to possess receipts and other relevant documents to prove that top-up loan has been used towards acquisition, construction or renovation and repair of the house or residential premise.
On the principal repayment no deduction can be claimed in case the funds have been used towards renovation, repair or alteration of the residential property.
This story has not been edited by Topic Hunt (with the possible exception of the headline) and has been generated from a syndicated feed. (GoodReturns)