Tax Benefits on Home Improvement Loans: Home Renovation Loan Tax Benefits

Continuing our series of articles on Home Loan Tax Benefits, here are some important details about another important aspect of home loans - the Home Loans taken for Home Renovation or Home Improvements. This is a common scenario in case you buy some old resale property (see related Advantages Of Buying Resale Property, Disadvantages Of Buying Resale Property & Checklist for Resale Property Purchase), OR you inherit some property from your parents or family OR you get some old property as a gift from any of your relatives or friends. Being an old property, it needs some furbishing, some repair work, etc. but that cost is high for you to afford. So you decide to take a Home Improvement Loan or Home Loan for Renovation . The question is - is the home loan taken for Improvement or renovation eligible for any tax benefits? Who all can avail the home improvement loan tax benefit? Let's see some of these cases in this article

Home Improvement Loan Tax Benefit: Home Renovation Loan Details

What is home improvement loan or Home renovation loan?
The home loan which is taken for carrying on repair, renewal, reconstruction or renovation in any old house or residential property is called home improvement loan.

Who is eligbile for home improvement loan or Home renovation loan?
Any individual who is the owner or joint owner of the property can apply for home improvement loan or Home renovation loan. The bank providing the loan will decide the eligibility criteria for the individual.

Is Tax benefit available for the borrowers on home improvement loan or Home renovation loan?
Yes, you can get tax deduction benefit in respect of the interest payable on the loan taken for repair, renewal, reconstruction or renovation to the extent of Rs 1.50 lakh under section 24 of the Income-tax Act, provided the house is self-occupied. There is no limit on the tax benefit on interest if the house is on rent.
However, there are 2 limitations -
1) Only the interest portion of the Home Improvement Loan qualifies for tax benefit. The principle portion repayment amount does not provide any tax saving benefit.
2) Tax benefit can be availed only by the owners or co-owners (joint home owners)

Please note that this tax benefit is available on ALL investments and expenses you make under section 80C, and although the SUM TOTAL of all these can exceed 1.5 lakhs, the tax benefit can ONLY be availed on 1.5 lakhs maximum. See Tax Savings Section 80C: List of Qualifying Investments and Expenses

To see more on Home Loan related Tax Benefits, please check Home Loan Tax Benefits and All Home Loan Articles

Is Tax benefit available to co-applicants also for home improvement loan or Home renovation loan?
There is this new term called "co-applicants" which has been devised by many banks. This term basically refers to a person whose name banks take as co-applicants along with the actual home loan borrowers. Usually, Home loan provider banks take a name of co-applicant for 2 reasons

1) Security : In case the primary loan seeker defaults, the co-applicant can be approached
2) Nominee: In case of death of the primary loan seeker, the co-applicant is approached

However, Home loan co-applicants are usually NOT eligible for tax benefits on any kind of home loans. Only the owners & joint owners whose names appear on the property documents are eligible for home loan tax benefits. However, the definition of co-applicants may differ from one bank to the other. Please check with your home loan bank's legal department on the tax benefit eligibility for any kind of home loan. They should be courteous enough to provide that advice free of cost