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Taxation on Home Top Up Loans Explained | Cheapest Personal Loan

Amazing Facts on Taxation on Home Topup Loans

 

Topup loan is a product offered by banks and NBFCs to borrow a further sum of money over and above the existing home loan as per the value of the underlying property and your repayment capacity. It is the cheapest personal loan offered by the banks to its existing home loan customers in terms of rate of interest;  with or without the extension of mortgage as per the bank’s norms.

The purpose of the topup loan may be for any personal use other than speculative purposes.

 

Nowadays topup home loan is becoming a popular product as it is equivalent to a personal loan with a cheaper Rate of interest. People are very clear about the taxation on home loans, but when it comes to topup home loans, it's a little bit confusing for individuals.

 

We have simplified Tax benefits on Home Top Up Loan to understand. It has been divided into 2 parts and explained below :

 

1. Self Occupied Property:  

For self-occupied property maximum amount for deduction under section 24 of the Income Tax Act for interest on the Topup home loan part is INR 30,000/- only. However, the overall ceiling limit under Section 24 is INR 200,000 /-

 

Illustration

Your main home loan interest for the financial year is INR 1,50,000/- and interest on topup home loan is INR 35,000/- then, the maximum amount which you can claim under section 24 is INR 1,50,000 ( For main home loan ) + INR 30,000/- (For topup home loan) = INR 1,80,000/-.

 
In case of joint property: 

In this case Section 24 limit is INR 2,00,000/- for each individual, hence you shall have INR 30,000/- ceiling limit for each individual and you can claim interest up to INR 60,000 by dividing equally among joint owners.

 

2. Let Out Property: 

For Let Out Property there is no limit to claim interest for deduction under section 24, but there is one restriction that for a given financial year you can claim only INR 2,00,000/- for deduction and any amount more than this amount may be carried forward for up to 8 years.

 

PRINCIPLE PART OF YOUR TOPUP HOME LOAN CAN BE CLAIMED UNDER THE LIMITS OF SECTION 80 C of INCOME-TAX ACT, ONLY IF THE LOAN AMOUNT IS USED FOR CONSTRUCTION / PURCHASE OF NEW HOUSE PROPERTY. THE ABOVE DESCRIPTION IS ONLY FOR THE INTEREST PART.

 

INTEREST ON TOPUP HOME LOAN SHOULD ONLY BE CLAIMED FOR DEDUCTION UNDER SECTION 24 IF THE AMOUNT RECEIVED FROM LOAN HAS BEEN USED FOR REPAIRS / RENOVATION / MODIFICATION / ALTERATION / EXTENSION OF THE HOUSE PROPERTY.

IN CASE THE LOAN AMOUNT HAS BEEN USED FOR VACATION / MARRIAGE / TOUR ETC. NO DEDUCTIONS ARE ALLOWED UNDER SECTION 24.


Understand it the other way, If the funds are utilized for construction or purchase of a new house, tax deduction can be claimed on both the interest and principal part as per the limits of Section 80 C and section 24.

If the funds are used for Repair and Renovation of the house property, only the interest part can be claimed for deduction.

In both cases, you need to keep receipts as documentary proof that the funds have been utilized for the purpose as declared in ITR in case the income tax authorities ask for it.

 

Disclaimer:

This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.


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