I took a home loan to acquire the flat in which I am currently staying. I now wish to carry out extensive repairs to the flat. I approached my existing lender to inquire whether it would provide me a loan to pay for these repairs. The bank has agreed to provide a home improvement loan to fund these repairs. What is the position of tax benefits on the repayment of such loan?
Most people know that the interest payable on a home loan taken to acquire/construct a property is deductible for tax purposes. Not many people are, however, aware that it is possible to also claim deduction for interest paid on loans taken for repairing or renewing (that includes painting and/or repairing) your house property. Such loans are typically called home improvement loans by most banks. In fact, if the house property is not self occupied (i.e. the house property is vacant or has been let out) then there is no limit to the amount of interest you can claim as deductible.
For people who stay in their own houses, the limit for deduction is Rs. 30,000 per annum. However, if you have also taken a loan for acquiring/constructing the house the limit for deduction is as under:
If the loan for acquisition/construction was taken before April 1, 1999 – then the combined (interest paid on the loan taken for acquisition/construction and the loan taken for repair/renewal) limit for interest deduction stays at Rs.30,000.
If the loan for acquisition/construction was taken on or after April 1, 1999, then the combined limit is Rs.1,50,000.
No deduction is available for the principal portion of the repayment on home improvement loans.