Most borrowers are aware of the home loan tax benefit on repayment of a housing loan – deduction permitted on the reconstruction of the interest and principal components. However, not many borrowers are conscious of the tax deductions on interest repayment on a home renovation loan.

Tax deductions on home reconstruction loan

Even if you are reconstructing your home, you can still enjoy tax benefits for home loan for under renovation property.

For a self-occupied residential property, if a borrower has taken a home reconstruction loan, he/she can claim tax exemptions under Section 24(b) of the Income Tax Act on the interest component. However, the deduction amount is capped at Rs. 30,000 per annum for a self-occupied property.

If the housing loan interest and principal are paid for the renovation of a let-out house, then the full part of the interest component is allowed for tax deductions. As per tax experts, you are required to keep all the documents of the reconstructed property incurred towards its renovation expenditure as a proof for claiming tax benefit.

Worth mentioning – even if a borrower avails an advance for a second residential property, he/she can still claim tax deductions on interest repayments of up to Rs. 30,000 over the interests repaid on your housing loan.

Furthermore, the co-borrowers can also benefit from tax saving on home loans for renovation if the residential property is owned jointly.

What is exempted from tax benefits?

If a borrower avails a home loan for renovation and construction of luxury items such as swimming pool, fireplace, etc. then he/she is not eligible under tax benefits. It is to be noted that you cannot avail tax benefits on the principal component of the home improvement loan under Section 80C of the Income Tax Act.

As per the Budget of 2017, the cost of home renovation on an indexed basis has been reduced from taxable capital gains. If the nature of repairs is of capital expenditure, such renovation costs will be held as a ‘cost of improvement’ of that particular residential property. This will bring down the capital gains (taxable) in case the property is sold in the near future.

How to claim home loan tax benefits?

Now, that you know everything about tax savings when you take a home loan for renovation, take a look at how you can claim these exemptions –

  1. Ensure that you have relevant documents to provide ownership. In case of joint home loans, furnish proof that you are the co-owner of this property.
  2. Calculate the entire amount you can claim under tax deduction.
  3. Hand over the home loan interest certificate to your employer so that he/she can adjust the TDS.

Keep in a note that self-employed borrowers are not required to submit these documents; although they must keep them in handy to furnish if any inquiry arises.

How to compute tax benefits on a home loan?

If you have availed a home renovation loan, use the lender’s home loan tax benefit calculator to calculate the tax benefits conveniently. It is an online financial tool that instantly computes the tax exempted amount based on housing loan details. Some of these details include the loan amount, interest rate, existing tax deductions, etc. You are required to enter the required information and check your available tax benefits.

Where to avail home loans from?

NBFCs in India have become the top source of financing in recent years owing to their attractive housing loan interest rates. Companies like Bajaj Finserv offer such home loans with several benefits.

Now that you are aware of the home loan tax benefits when reconstructing your property, make the claims to lower your financial burden. Avail the loan certificates in due time to ensure no difficulties when doing the same.