Loan to repair home too gets tax rebate

Loan to repair home too gets tax rebate
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First Published: Wed, Dec 16 2009. 09 28 PM IST
Updated: Wed, Dec 16 2009. 09 28 PM IST
I have a home loan for the flat in which I am staying. Now, I want to carry out extensive repairs in the flat. My existing lender has agreed to provide a home improvement loan to fund these repairs. Will I get tax benefit on this loan?
Most people know that the interest payable on a home loan taken to acquire or construct a property is eligible for tax deduction. However, not many people are aware that it is also possible to claim deduction on the interest paid on loans taken for repairing or renewing your house property.
Since you already have a home loan running, you will get tax benefit on the combined interest paid (up to Rs1.5 lakh) on both the loans. No deduction is available for the principal portion of the repayment on home improvement loans.
What tax benefits are available on educational loans? Is tax rebate available on the principal or the interest repaid? Is it deducted from salary income or treated as saving?
You can claim deduction under section 80E of the Income-tax Act for the interest paid on an educational loan. You will get this benefit only if the loan is in your name and is taken to fund higher education for yourself, your spouse or your children. You wouldn’t get this benefit for a loan taken for your siblings or anybody else. You can get the benefit by making an appropriate tax declaration to your employer, who will lower your tax deducted at source.
I recently transferred my loan from one bank to another to take advantage of the lower rates offered by the new lender. Will this, in any way, affect the tax benefits that I am availing on the loan? I have paid pre-closure charges to the first bank. Are any tax benefits available on such pre-closure charges?
In case of self-occupied property, section 24 of the Income-tax (I-T) Act clearly provides that where the new loan is taken to pay off an existing loan (for acquiring or constructing the property), then tax deduction on interest repayments will continue. If the property is not self-occupied, an old circular of the I-T department should come in handy for you to claim the benefit (check http://www.incometaxindia.gov.in/publications/1_Compute_Your_Salary_Income/2_Income_from_house_property.asp). Since no such specific provision exists under section 80C, regarding the availability of deduction with reference to the principal repayment to the new lender, the deduction is technically not available for repayment of the principal to the new lender. However, in practice, it is allowed.
Pre-closure charges are treated as interest as defined under section 2(28A) and can be claimed as deduction.
Harish Roongta is CEO of ApnaPaisa.com
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First Published: Wed, Dec 16 2009. 09 28 PM IST