For years, people have been mortgaging property, whether commercial or residential, to arrange funds in times of need. After all, taking a loan against your property is better than selling it and losing ownership. Moreover, when you take a loan against property, the lender is assured of repayment. So, you will get faster loan approvals and preferential loan terms!
Yet another benefit of loans against property is the tax benefits. However, these tax benefits depend on how you plan to use the loan amount.
So, let us look at what tax benefits you can claim. We will also explain when these tax benefits apply and when they don’t.
Tax benefits on Loan Against Property
You can claim tax benefits on loans against property under Section 24(B) and Section 37(1) of the ITA.
One important thing to note here is that Section 80(C) does not list any tax benefits for a loan against property. Even if you use the funds to buy a home, you will not be able to avail of the tax benefits of home loans listed under Section 80 (C).
Tax benefits under Section 24(B)
Section 24(B) of the Income Tax Act allows salaried individuals to claim income tax benefits on loans against property. If you use your loan amount to fund your residential property, you can claim tax deductions up to Rs. 2 lakhs on the interest paid in one financial year.
At the time of filing your tax returns, you will have to provide the appropriate documents as proof to establish that the borrowed sum has been used to buy a residential property.
Note that only the interest payments are tax-deductible and not the principal amount.
Tax benefits under Section 37 (1)
You can claim a deduction under the provisions of Section 37(1) if you use your loan amount exclusively for business expenses. You can claim tax deductions on the interest paid and the fees and charges associated with your loan.
Tax Benefits on Top-up Loans
You can also enjoy tax benefits on a loan against property when you take a top-up loan. A top-up loan is when you need more credit than your existing loan amount. It allows you to avail of funds over your sanctioned loan limit.
When you take a top-up loan on a home loan, it is treated as a personal loan. However, in a loan against property, as you have already kept your property as collateral, you don’t need to present additional collateral for a top-up loan.
The tax deductions for a top-up loan are different from tax benefits on loan against property. Some of the deductions include-
- For a home loan, you can claim a maximum deduction of up to Rs. 2 lakh under section 24(B) on the interest payable. However, on a top-up loan, the deduction is restricted to Rs. 30,000. Moreover, you can only claim this deduction on a self-occupied residential property.
- You can only enjoy a top-up loan against property income tax benefit if you use the funds to construct or renovate the housing unit.
- If in a financial year, your combined interest payable on the home loan and top-up loan exceeds Rs. 2 lakh, then you can carry forward the balance amount and claim tax benefits on the loan against property for up to 8 years.
When can you claim tax benefits on a loan against property?
You can claim tax benefits if:
- You use the loan to purchase a residential property, as per Section 24(B)
- You use the loan amount exclusively for business expenses, as per Section 37(1)
No tax benefits are applicable if:
- You use the loan amount for medical expenses
- You use the loan amount for education
- You use the loan amount for personal reasons like travel, wedding, etc.
- You use the loan amount to remodel or renovate the mortgaged property.
How to Apply for a Loan Against Property
Now that you know all about the loan against property income tax benefits, here’s how you can apply for one online-
- Visit the official website of your preferred lender.
- Navigate to the loan against property section and click on ‘Apply Now’.
- Fill out the online application and enter the correct personal information.
- Upload the required documents like bank statements, income proof, address proof, property documents, etc.
- Click on ‘Submit’.
Once the lender verifies your application and documents, your loan will be approved and you will receive the amount directly in your bank account.
No tax exemption will be provided in the following scenarios-
There are cases where the loan amount used for specific purposes is not eligible for tax exemption.
If you have taken a loan against property to use the funds for non-housing purposes such as marriage, education, travel, or medical bills, the interest paid on such loans does not qualify for tax exemption.
This is because the tax laws usually distinguish between expenses that qualify for tax exemption and those that do not. While home purchase, construction, or renovation expenses qualify for tax deduction, other expenses for education, medical, travel, and marriage are non-qualifying expenses and do not carry tax exemption.
To sum up
Loans against property are a secure financing option. They can be beneficial if you need quick loan approval and better loan terms. However, the tax benefits depend on how you use the loan amount.
You can claim tax benefits on the interest payable only if you use them to buy a residential property or fund business expenses.
For easy loans at attractive interest rates and flexible EMI options, turn to Tata Capital. Visit our website to check your loan eligibility and explore our offerings.
FAQs
You can save tax on your property loan by claiming deductions under Section 24(b) for up to Rs. 2 lakhs on the interest paid in a financial year and under Section 37(1) on the interest paid if the amount is used for business purposes.
A loan against property offers several benefits, such as competitive interest rates, larger loan amounts, longer repayment tenures, and tax benefits on interest payments.
You can claim tax deductions under Section 24(b) for the interest paid in one financial year on a loan against property.
Home loans and education loans offer tax exemptions to the borrowers, but personal loans do not provide any tax benefits. Moreover, loans against property also carry tax benefits, but only if the loan amount is used for qualifying purposes such as home construction, purchase, or renovation.
03 December 2024
5 mins read
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