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A Top-Up loan is offered by the lender, over and above the amount of the existing loan. For example, if you have taken a Home Loan, which is insufficient to finance the purchase or refurbishment of a home, then you can apply for a Top-Up Loan to increase the total amount borrowed and meet your goal. You can repay this loan in EMIs, as well.

Tax Benefits on a Top-Up Loan

You can claim tax benefits on a Top-Up Loan, only if you use it to repair, extend, renovate or construct a residential property. If you use the loan for a self-occupied property, you can avail of a maximum tax deduction, of up to Rs 30,000. However, if you use the loan for a let-out property, no limit applies to the deduction. Nevertheless, both are included in the overall annual tax deduction of Rs 2,00,000. You get tax benefits on the interest component of Home Loans.

In case you use a Top-Up Loan to construct or buy a new property, you can claim tax deduction on the interest and principal components of the loan. It can be up to the limit prescribed under Section 24(B) and Section 80C of the Income Tax Act.

But, if you use the Top-Up loan to alter, repair or renovate a Residential property, you can claim the tax deduction for the loan's interest component, not the principal component. Make sure to preserve the documents and receipts of all the work you do on the property using a Top-Up Loan. This will help you claim the tax benefits on the loan.

If the current lender charges a high interest rate, you can opt for a Home Loan balance transfer to a new lending bank, offering a lower interest rate on both the Home Loan and Top-Up Loan. Depending on the bank, you can skip the documentation process when applying for the Top-Up loan and even get a pre-approved one, based on your need. If you wish to borrow a large amount, check whether the bank offers a loan for up to Rs 1 crore to select customers. Also, see if you can get access to a maximum repayment tenure of 10 years.

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