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Home equity loan- tax rebate

Siva (Senior Cons.) (25 Points)

04 August 2014

Sir,

I have taken Home Equity loan from SBI. The amount was used in buying a new house (initial downpayment).

My question is:

Is there tax benefit for Home Equity loan. I am aware of the tax benefits of Home loan (traditional), but want to check with you about Home Equity loan. Please note that the property on which I took Home Equity loan is still having the original Home loan outstanding.

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6 Replies

Tribhuvan Aditya Singh (Student as well as Self-employed) (3710 Points)
Replied 04 August 2014

as you said home equity loan was taken for purchase of another house property then intt. on such loan can be claimed as deduction under sec 24b. since now you own two house properties, only one of them will be treated as self occupied and other one will be deemed to let out. deduction of intt on loan (whether traditional home loan or home equity loan) will be subject to a max of 150000 in case where the property is considered to be self occupied.

Tribhuvan Aditya Singh (Student as well as Self-employed) (3710 Points)
Replied 04 August 2014

let us understand with an example. you purchased prop. A with tradional home loan and pay intt 200000 annually. now you took home equity loan by mortgaging prop. A and purchased new prop. B. intt on home equity loan is 180000 annually. now since you own both prop. A and B, either of one will be deemed to be let out. suppose prop. A is treated as self occupied and B is deemed to be let out or it is actually let out and earns you rent. then deduction under 24b for intt on loan in case of prop. A will be 150000 and prop. B will be 180000...... if above situation is reversed and A is let out and B is self occupied then deduction under 24b will be 200000 for A and 150000 for B.

Tribhuvan Aditya Singh (Student as well as Self-employed) (3710 Points)
Replied 04 August 2014

had this home equity loan been taken for any purpose other than repair of house, construction of house or purchase of new house, then deduction under sec 24b will not be available.

Siva (Senior Cons.) (25 Points)
Replied 05 August 2014

Yes. I have used the loan amount from Home Equity as downpayment for buying a new property.

Moreover, the Home Equity interest amount is just 40,000 p.a and I anot concerned if it falls under 1.5 lakh bracket (self occupied or let-out). It does not anyway apply here!!

SBI bank says they will not issue interest certficate for Home Equity loan. Is this correct?

Regards

Siva G

Tribhuvan Aditya Singh (Student as well as Self-employed) (3710 Points)
Replied 05 August 2014

you should be concerned for 40000 as it is available for deduction under 24b. if the bank is not providing interest certificate then just ask them to print out ledger for FY 13-14 and it will do your needful.

Sarbendu Sanyal (MBA) (21 Points)
Replied 14 June 2015

If i purchase a residential plot with home equity loan, mortgaging my second house, is the interest paid is tax deductible? I show my loan for this second house under section 24b.