Before we get into the idea of tax deductions and all the other technical financial terms. It is absolutely essential to understand what exactly home improvement means and what all comes under the broad perspective of home improvement. Since, you know when you are adding a wall hanging to your room or a tooth brush holder in your bathroom, it is improving your life at home but is this really covered under home improvement.
What is Home Improvement according to the Income Tax Department?
First of all the money that individual pays against their Home improvement loans are tax deductible. However, it is also tax deductible if its is paid directly by the homeowner . Home improvement refers to the following, when it comes to taxations: It mainly includes any renovation or construction work.
This could include making a new balcony, extending a room, adding a room or even a floor (as long as their is a permit for construction for extra floors), painting, re-flooring work or re-tiling of bathroom or kitchen, all sorts of plumbing work, basically anything covered under the home improvement loan. Home improvement loans generally cannot be taken for buying consumer durable goods such as furniture or appliances for your home. This also includes security systems. However, if there are installations and construction work required for the the same banks may approve the loan, banks usually do not approve it under the home improvement loans umbrella. However, if you are remodelling your kitchen, the construction might be included but the appliances and kitchen cabinets may not be included.
Tax Deduction for Home Improvement in India:
The tax deduction is applicable to only people who purchase or let’s say the construction of a house, but it includes loans taken for repairwork as well as renovating the house such as painting the walls. These loans were introduced in India by several banks to serve such purposes However it is essential understand that luxury items such as fireplaces or a swimming pool are ideally not eligible for tax deduction. Under Section 24 of the Indian Income Tax Act, 1961, the interest that is payable on the home improvement loan is however tax deductible for up to Rs 30,000 p.a. This forms a part of the complete tax benefit of Rs.1,50,000 that is available per annum under this section for the interest paid on home loans. Hence, in the situation that you servicing a housing loan and therefore availing the income tax benefit on the interest that you are paying for the loan, the combined and absolute limit for the tax deduction for both interest paid on both the housing loans as well as the home improvement loan is Rs1,50,000. For instance if the interest that you are paying per year on the home loan is Rs. 1,20,000 or less, the maximum benefit for of Rs. 30,00 on home improvement will be applicable. But it is important to that one cannot avail any tax benefits on the principal amount of the house improvement loan under the section 80 C which gives some provision for tax deduction in the case of housing loans.
How to Apply for Home Improvement Loan?
Here are the basic steps that you need to follow to apply for a home improvement loan:
- Make an estimate of the amount you require for the construction, repair or rework.
- Have the plan in writing and submit it to the bank.
- Generally a bank provides 85-90% of the amount that you have listed in your plan.
- The ‘technical department’ of the bank or the lending company approves the quoted amount, the lender evaluates how you can or whether you will actually be able to repay the loan amount, sanctions your loan and the amount is disbursed in your account.
- Sometimes the quotation may not be rejected but certain enlisted costs may not be included. To avoid such disappointments ensure that you read the brochure, terms and conditions of the home improvement loan carefully.