Renovating a house can put financial strain on your pocket. To ease off such a pressure, you can take home improvement loan, also called as house renovation loan. Most people do not know that they can avail tax benefit on home improvement loan. In this article, we will tell you all about renovation loan and how you can avail home improvement loan tax benefit.
What is a Home Improvement Loan?
A home improvement loan or house renovation loan is a loan offered by a bank or financial institution to an individual to undertake repairs, renovation and maintenance works in an existing house or in a new house.
Works such as painting works, fixed wood work, flooring work, sanitary & electrical works, internal or external modifications of the house etc. are all considered by banks for the renovation loan. However, bank will not approve a home improvement loan to effect purchase of new furniture or consumer durable goods etc.
How to get Home Improvement Loan?
Most banks offer home improvement loans these days. The process to obtain house renovation loan is as follows:
- First take cost estimate for the complete work from a contractor and submit the estimate to the bank along with the loan application form.
- Submit all documents required by bank to assess your loan eligibility.
- The bank will then conduct a site visit and verify cost estimates. If you have an existing home loan with a bank, the bank may skip this process.
- After verification, the bank will approve the loan upto an extent of 85% of total estimated cost of work. You will have to fund the balance amount yourself.
Generally, the loan processing fee charged by banks ranges from 0.5% to 0.75%.
Renovation Loan vs Personal Loan – Which one to choose?
Not many people are aware of the benefits of renovation loan. Due to sheer ignorance, many people take a personal loan instead of a home improvement loan. If you have to choose between the two, you should always choose a renovation loan over personal loan, mainly because of two reasons:
- Home improvement loan interest rates are much lower than personal loan rates.
- Home improvement loan offers tax benefits.
Home Improvement Loan Tax Benefit
- Under section 24 of IT Act, you can claim deduction on interest repayment of home improvement loan upto Rs. 30,000 per financial year. In case, it is your self-occupied property, then this limit will be part of the overall tax deduction limit of Rs. 2 lakh interest repayment allowed under section 24. For eg. if your home loan interest repayment is more than Rs. 2 lakh in a particular year then you won’t get any extra tax benefit on home improvement loan. Whereas, if your home loan interest payment is less than Rs. 1,70,000, you can claim deduction of maximum Rs. 30,000 on renovation loan.
- In case, the renovation loan is taken for second home, you can claim the entire home improvement loan tax benefit of Rs. 30,000 over and above the interest repayment of your loan on second home.
- No tax deduction is allowed on principal repayment of renovation loan. In case the property is owned jointly, both owner and co-owner can avail home improvement loan tax benefit on interest repayment upto Rs. 30,000 each as per the above conditions.
Tip – If you have an existing home loan with a bank, you can apply for a home improvement loan with the same bank. Approval process will hardly take any time.
Over to You
We need your love! Like and Share this article on “Home Improvement Loan Tax benefit”, if you found it useful.
Have something to say or ask? Please comment below.