How Can You Avail Tax Benefits From Your Loan Against Property?

A loan against property is the kind of housing finance loan that you can borrow from a lending institution in exchange for a collateral, that is, the property in context. How much loan amount you can borrow will depend on the market value of the property at that given point in time. Under the regulations of the RBI, a lending institution can give you only a maximum of 90% of the property’s value as a loan. This will be called a loan against property.

Like several other loan types, a home loan comes with certain tax benefits. This article talks about a loan against property tax benefits and how to avail them.

Loan Against Property Tax Benefits

Although LAP is a type of home loan, there are no tax benefits on LAP. However, there are certain Sections under the Income Tax Act of 1961 that you can refer to if you want to save a big chunk of your money. These provisions are according to the principal loan amount that you have borrowed and can be availed on the interest to be paid only, not the principal repayment amounts.

Tax Benefits Under Section 37(1)

One of the provisions talking about tax benefit on loan against property is Section 37(1) under the Income Tax Act. It lists expenditures that one might have to make towards a certain cause, and not income as commonly misunderstood. It explains that if you encounter an expense during your business activities that is neither personal nor capital related, but was utilised to get an operation related to business performed, then it can be listed as a business expense under the P&L statement. This record is then to be submitted to the lending institution as part of the procedural documentation.

Now, when you take up a loan against property, the loan itself is not tax-deductible at all, be it a business loan or a personal loan. But when you opt for a home loan, you can avail tax benefits on the transaction because this is counted as you investing in a given property up against some money. In this case, your loan can be exempted from taxes.

Tax Benefits Under Section 24(B)

Under this provision, you can get a loan against property tax benefits if you are a salaried individual applying for the loan. It states that if the funds you borrow from the lending firm are used on a residential property, then under certain conditions, you can get the benefit of claiming tax deductions of up to INR 2 lakhs. This utilisation can be for acquisition, construction, reparation, renovation, or reconstruction.

No Exemption Under Section 80C

Under Section 80C of the Internal Revenue Code, there are no tax benefits on mortgage loans if the money is used for education, marriage, travel, medical emergencies, or other non-housing purposes. This is unfortunate because this Section is most commonly referred to when taking up a home loan, i.e., a loan taken to fund an operation related to housing.

Tax Benefits on Top-Up Loans

A top-up loan is when you require more funds than your existing housing loan amount and take up an additional loan. A top-up loan taken on a home loan is considered to be a personal loan. This will not need any more collateral than what you have already surrendered to take up the home loan.

The rules for top-up loan tax deductions are different from mortgage loan tax benefits. Some of them are:

• Maximum tax deduction on interest payable under Section 24(B) is of INR 2 lakhs in the case of home loans, but with top-up loans, this is restricted to INR 30,000, that too only on a self-occupied residential property.
• The top-up loan amount must be used only for construction or renovation of the housing unit.
• If the total interest payable surpasses INR 2 lakhs for the combination of home loan and top-up loan, then you can carry the sum forward and claim deductions for a maximum tenure of 8 years.

Must Read: How to Claim Tax Benefit On Top-Up Home Loans

Conclusion

A loan against property comes with several tax benefits bound to terms and conditions. If you’re interested in taking up a mortgage loan and availing mortgage loan tax benefits, you should take up SMFG Grihashakti’s loan against property. With the ease of online application, simply documentation, and a quick approval process, we offer the best financial support when you need it the most. Get affordable EMI structure according to loan amount and interest rates through our online LAP EMI calculator. This way, you can construct your monthly budget with ease.