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Home loans are one of the most popular secured loans available in the Indian market. These external financing solutions offer individuals access to lump-sum credit for a residential purchase.
One of the benefits of these loans that make them more manageable is income tax exemptions.
You can claim income tax benefits on home loan under the following sections –
- Section 80C – Tax exemptions of up to Rs. 1.5 Lakh on the home loan principal.
- Section 24(b) – Tax exemptions of up to Rs. 2 Lakh on the home loan interest paid.
Home loans also offer various other features along with income tax benefits. Two such features include a balance transfer facility and a top-up loan.
Balance Transfer Facility
Financial institutions provide you with the option to transfer the outstanding balance of your home loan to another lender. This facility is beneficial when another company is offering a lower rate of interest or additional benefits that the current lender is not offering.
Top-up loans are one of the vital reasons why you should opt for a home loan transfer.
Top-up loans is an additional amount that financial institutions offer over your existing home loan. These loans are high-value personal loans and not linked to your housing loan. Hence, you can use the funds for any purpose, whether investing in your property or elsewhere.
Income Tax Benefits on Top-Up Loans
Making sure you know all about top-up loans will help you claim deductions on your taxable income. You can avail tax benefits in cases such as –
Top-up loans help you claim income tax exemptions if you use it for higher education. You can use the funds to send your child to a renowned institute, whether in India or abroad.
One of the benefits of using this loan for higher studies is that it can be used for practically any expenses, unlike education loans. You only avail the funds for tuition fees when you opt for an education loan. However, top-loans can finance not only tuition fees but also hostel fees, books, equipment, etc.
Using the top-up loan for higher education gives you the option to claim income tax deductions under Section 80E. The benefits are available only on the loan interest paid. There is no upper limit to the claims; however, you can only avail the exemptions for 8 years.
Home loans are only available to construct or purchase a property. You cannot use the funds for renovation.
You may need to do so if you have purchased a second-hand property. In such cases, you can opt for a top-up loan and use it to revamp your home interiors and exteriors.
You can also avail income tax benefits for home loan interest paid under Section 24(b). However, the exemptions are only limited to Rs. 30,000.
You can take advantage of the attractive top-up loan interest rates and invest extensively in your business. Doing so also enables you to avail income tax benefits on the payable loan interest. The entire interest that you pay is deductible from your capital gains.
Home Purchase or Construction
Lastly, income tax benefits on top-up loans are also available when you invest the funds behind the construction or purchase of your property.
In such cases, you can claim exemptions on your taxable income under Sections mentioned in the beginning.
Make sure to use a top-up loan calculator before you opt for this financing. This calculator tells you the amount you save during balance transfer and the eligible top-up amount.