Yes, a home renovation loan is eligible for tax exemption. Borrowers can claim tax deduction on the interest component of the loan. However tax deduction cannot be claimed for the principal component.
Home Renovation Loan Tax Benefits on The Interest Component
The tax exemption on home renovation loans can be claimed on the interest paid against the home renovation loan. This is according to Section 24 of the Income Tax Act, 1961. But this has a maximum limit of Rs. 30,000 per annum. This tax exemption on home renovation loans features in the overall tax benefit of Rs. 2,00,000 available every year under Section 24 for the interest amount paid against the home loans. In case the house is rented out, the interest can be deducted completely.
Suppose you have a housing loan currently and are claiming income tax benefit on the home loan interest, then the cap on tax deduction against both interest paid on the housing loans and home improvement loan is Rs 2,00,000. For instance, if you are paying an interest of Rs. 1,70,000 on the home loan, then the upper cap on tax rebate on the home renovation loan would be Rs. 30,000.
Home Renovation Loan Tax Benefits on The Principal Component
There is no tax exemption on the principal amount for home improvement loans. You cannot claim tax benefits against the principal amount of the home renovation loan under Section 80C of the IT Act, which actually has a provision for tax deduction for a home loan.