A home directly reflects who we are as a family, the values we represent, and is far much more than just a roof over your head. It talks about your stature in society while reflecting on your accomplishments in life, and with the right aesthetics, it gives you much-needed comfort at the end of the day. 

However, renovating your house can be costly and often difficult to afford. Choosing a specific personal loan for the purpose makes it an affordable choice and helps you fulfill your dream of decorating your house the way you envisioned it. Like a home loan that allows you to purchase a home easily, a personal loan is perfect for modifying, refurbishing, or renovating your home. And with the available tax benefits on it, this has recently become a preferred and much-favored option. 

How does the Income Tax Department define home improvement?

According to the Income Tax Department, a home improvement includes any kind of renovation or construction work, like including or building a new balcony, extending a room, adding a room or even a floor (if there is a permit for extra floors), painting, re-flooring or re-tiling of a bathroom or kitchen, all types of plumbing work, or any similar work. A home improvement loan cannot be availed for the purchase of consumer durable goods, installation of new security systems, or for the purchase of luxury items like fireplaces and swimming pools. For example, if you’re remodeling your kitchen, the construction costs will be covered in the loan, but the purchase of modular appliances will not be. 

About tax deduction on personal loans for home renovation

When your plan to renovate is finalized, you can borrow the amount and be eligible for tax benefits on the interest levied on the amount. As per Section 24 of the Indian Income Tax Act, 1961, the interest payable on the home improvement loan is eligible for tax benefits and deductible up to Rs 30,000 p.a. for owned and self-occupied property. However, if the property is rented, it is applicable for deduction of the entire interest amount without any cap. 

 Unlike a home loan, where the deduction is made based on the principal amount as under Sec 80C, the deduction for a personal loan for a home renovation is made based on the interest charged. However, it’s important to note that this deduction for an amount of Rs 30,000 is included within the limit of the maximum Rs. 1.5 lakhs that have been preset. In simpler terms, it means that the maximum amount you can avail of for a tax-free deduction is Rs. 1.5 lakhs or less per annum, in case of which the amount will be Rs. 30,000 per year. 

How to apply for a home improvement loan?

The process of getting a personal loan for home improvement purposes is the same as for any other reason. First, check your eligibility and then estimate the amount you need to borrow. Check for the several options available in the market and go for the personal loan interest rates that are the lowest. Once you’ve chosen the lender, understand your financial position and decide the tenure of the loan by calculating using a home loan EMI calculator and estimating the monthly EMI with a personal loan EMI calculator and choose the one that fits your needs the best. 

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