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Home Articles Top-up Home Loan: Eligibility, Features and Benefits

Top-up Home Loan: Eligibility, Features and Benefits

IndianMoney.com Research Team | Updated On Tuesday, September 11,2018, 11:31 AM

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Top-up Home Loan: Eligibility, Features and Benefits

 

 

Top-up Home Loan:

Top-up home loans add to your existing loan. You can apply for a Top-up loan if you already have a Home Loan and have been making regular repayments by agreeing to the bank’s Terms and Conditions.

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Top-up Home Loan Eligibility criteria:

The eligibility criteria to get a top-up loan:

1.  You must have an existing Home Loan with the bank.

2.  Make regular repayments for at least a year.

Features of top-up loans:

1.  A top-up plan can be used for any purpose, be it for a vacation, wedding or to pay college fees. You can treat it as a personal loan and use it accordingly, the choice is yours.

2.  The tenure of top-up loans can be 20 years or for the remaining tenure of the Home Loan, which is at the bank’s discretion. It also depends on your profile, income, age and so on.

3.  The maximum amount of top-up offered differs across banks.

4.  These loans are offered at interest rates almost similar to Home Loans.

SEE ALSO: Should You Avail A Home Loan From Banks Or NBFC?

Benefits of top-up loans:

Top-up loans are better than personal loans:

1.  Interest rates on these loans are quite low compared to other loans and credit cards, ranging from 9-12% a year.

2.  They are available for longer tenure.

3.  They are easily approved and disbursed.

4.  They give tax benefits if used for home repairs, construction or for education.

5.  Banks also offer home loan balance transfer with top-up loan. Therefore, you can save on processing charges when transferring the loan to other banks.

Communication on rejection of a home loan:

A lender has to communicate in writing, if the loan were to be rejected. They should state the relevant reasons on why the loan was rejected.

Home Loan and tax:

Availing a Home Loan gives tax benefits. EMIs on Home Loan repayments have two components: principal and interest. The good news is that you get a tax deduction on both the components.

Principal component:

1.  You get a tax deduction of  Rs 1.5 Lakhs a year under Section 80C of the Income Tax Act, on principal repayment.

2.  You can also claim a tax deduction under Section 80C for stamp duty and registration fees paid on the property.

Note:

1.  If you sell your property within 5 years of purchase or construction, the benefits claimed under Section 80C will be reversed.

2.  The benefits will be added to the taxable salary in the year in which the property was sold.

3.  You’ll have to pay tax on the final amount.

Interest component:

1.  You get a tax deduction of Rs 2 Lakhs a year under Section 24b of the Income Tax Act, on interest paid if the property is self-occupied.

2.  If property is rented out, the entire interest portion on the Home Loan can be claimed as a deduction.

3.  You also get tax deduction under Section 24b if you take the home loan from relatives and friends.

Note:

1.  The lender friend/relative should be filing ITR. They should report the interest income from Home Loan and pay tax on it.

Under construction property and tax:

You commence construction once Home Loan gets sanctioned. You start repaying the loan while your property is still under construction. You cannot claim tax benefits on home loan repayments, while the property is still under construction.

Pre-construction interest:

The interest that you pay on the home loan, prior to completion of the construction of the property is known as pre-construction interest. It is treated as follows:

1.  Add up the pre-construction interest.

2.  Divide the sum by 5 to get 5 equal installments. The number 5 represents 5 years.

3.  Claim tax deductions under Section 24, for 5 consecutive financial years starting from the year in which the construction of your property was completed.

Note:

1.  The construction of the property should have been completed within 5 years from the end of the financial year in which the Home Loan was availed.

2.  If this doesn’t happen, the interest benefit under Section 24b will be Rs 30,000 and not Rs 2 Lakhs.

3.  Deduction of interest is limited to Rs 30,000 if:

  • The home loan was not for purchase and construction of a new property but for repairs and renewals.
  • The Home Loan was availed before 1 April 1999.

First time home owners and tax:

If you’re a first time home owner or have taken a Home Loan to acquire your first property, you are entitled to claim additional tax benefits as follows:

1.  Apart from tax benefit under Section 80C and Section 24b, you’re eligible to get a tax deduction on interest payment of Rs 50,000 a year under Section 80EE of the Income Tax Act, 1961.

 Condition:

1.  You have to be a first time home owner.

2.  The Home Loan should have been sanctioned between 1st April 2016 and 31st March 2017.

3.  Value of the property should be less than Rs 50 Lakhs.

4.  Value of the Home Loan should not exceed Rs 35 Lakhs.

Joint home loan and tax:

If you have availed a joint home loan, you can claim tax benefits. Keep in mind:

  1. Tax benefit in case of a joint home loan is available to joint owners.
  2. To claim tax benefits, you have to be listed as a property owner in the property documents. You’ll not be entitled to claim tax benefits even if you pay the loan, but aren’t the co-owner.
  3. You must be a co-borrower of the Home Loan as per the Home Loan documents to claim tax benefits.
  4. Co-owners who don’t contribute to EMIs are not eligible to enjoy tax benefits.
  5. Tax benefits on a house property can be claimed only from the financial year of completion of the construction.
  6. For under construction properties, the same tax laws are applicable which apply to an individual as mentioned above.

Note:

1.  The total interest that you claim as tax benefits cannot exceed the total interest that you actually pay on the home loan.

If the co-borrower is not contributing and you alone are paying the EMIs, you may claim the entire interest as a tax deduction.

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