How to Avail Tax Benefits on a Home Loan Top Up

Home loans are usually long-term loans as the amount is huge in most cases, and it takes quite some time to repay the lender. However, a major advantage here is the tax benefit that borrowers can avail while they are repaying their home loan. Many borrowers are often unaware that they can avail home loan tax benefits on their existing housing loan and even on a home loan top up. These tax benefits can be availed for as long as the borrower is paying the home loan.

Let’s take a quick look at the different sections of the Income Tax Act (1961) under which home loan tax benefits can be availed:

Section 24

Taxpayers can avail benefit on the interest amount of their total home loan for as long as they are repaying the loan. A maximum deduction of Rs. 2 lakhs can be availed for self-occupied properties. If the property has not been purchased for self-occupancy, then there is no cap on the maximum tax deduction that can be availed under this section. However, if the property hasn’t been completely constructed in the next 5 years, then this deduction quantum will drastically reduce to Rs. 30,000. 

Section 80C

Tax deductions under section 80C are capped at Rs 1.5 lakhs per annum, and taxpayers can avail home loan top up benefit on the principal loan amount. Beyond the capped amount of 1.5 lakhs, a tax deduction is not permissible under this section. However, if the entire limit hasn’t been exhausted by principal home loan tax benefits, then you can always add your Fixed Deposits, National Saving Certificate, Public Provident Fund, etc. 

  • New & Existing properties only – If the property purchased by the homeowner is under construction, it doesn’t offer a tax benefit under this section. A completion certificate also needs to be submitted for newly completed properties in order to avail this benefit.
  • Transfer rules for property – If the borrower has claimed tax benefits on home loan top up under section 80C, then transfer of property is not possible. As per section 80(5) of the Income Tax Act, the homeowner cannot transfer this property for a minimum of 5 years from the end of the possession year of the property.

Here is a quick classification of tax benefits available under sections 24 and 80C:

Contents Section 80C Section24
Tax deduction applicable for Principal loan amount Interest paid on principal amount
Property type Only residential properties Any kind of real estate property
Tax Deduction parameter On a paid basis On an accrual basis
Tax Deduction limit Up To Rs. 1.5 lakhs Up to Rs. 2 lakhs on self-occupied property and No limit for non-self-occupied property
Loan purpose Construction or purchase of new house/property Construction/Purchase/Repair/Reconstruction etc. of a residential property 
Eligibility to claim Tax deduction  Nil Construction or purchase should be completed within 5 years
Property sale restrictions If a property is sold within 5 years, tax deduction claim is reversed Nil


Section 80EE

If you are a first-time homebuyer, then this section offers an additional tax benefit of Rs 50,000 for home loan borrowers making interest payment on their loan. This tax benefit is over and above Rs. 2 lakh and Rs. 1.5 lakh benefit under section 24 and section 80C, respectively. As long as the loan repayment continues, a borrower can avail this home loan top up tax benefit. Additionally, the property value should be less than Rs. 50 lakhs, and the home loan for this property should be less than Rs. 35 lakhs.

In conclusion:

Borrowers can rejoice in the tax deduction they can avail on their home loans and home loan top up, as that will considerably lower the repayment burden as well. Many sections will offer tax benefits, and it is advisable to speak to an accountant and understand how to claim these benefits. Consult your loan manager today and understand home loan tax benefits and the advantages of home loan top up before you opt for one!

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