Scenarios When You Can Avail Loan Against Property Tax Benefits

Both salaried people and self-employed businessmen frequently use loans against property to obtain a sizable sum of money when they are in need. The terms ‘loan against property’ and ‘home loans’ are frequently used interchangeably. But these loan kinds are quite distinct.

Tax benefits for these credit lines are different from each other. You may get a loan against property tax benefits for several scenarios. Money from a loan against property can be used for either personal or professional purposes. A house loan can only be used to buy or renovate a home. In the case of a loan against property, the property serving as collateral can be auctioned in the event of defaults. Thus, lenders feel confident, and a loan against property can be easily obtained, and the interest rates on LAP loans are cheaper. Also, the borrower can select the repayment terms that best suit his needs. There are also longer repayment choices that have lower EMIs, which lessen the strain of repayments. It is significant to note that a loan against property tax benefits relies on the intended use of the borrowed funds.

Scenarios When You Can Avail Loan Against Property Tax Benefits
Scenarios When You Can Avail Loan Against Property Tax Benefits

A loan against property is one of the popular credit lines because of its several benefits. This loan can fulfil your financial requirements very easily. Getting this loan is easier compared to other kinds of secured and unsecured loans. The best advantage is that the loan against property interest rates is cheaper than other loans. This is the main reason why borrowers tend to get this loan. They can save a lot of money on paying interest. You may get longer tenure that helps you manage the EMIs. As a result, your monthly budget doesn’t get hurt by the EMIs. The loan against property rate of interest depends on the quality of the property. Lenders like Bajaj Finserv provide the best interest rates.

You can get a loan against property tax benefits in several scenarios. And those scenarios are:

Scenario 1: If you are Using an EMI Plan to Pay Back Your Loan:

You will be able to deduct both the interest and principal portions of each payment you make in any given year. This is possible if you are paying off your mortgage using an EMI plan. High monthly EMIs would restrict your financial flow. As a result, the government is providing tax credits to lessen the burden of EMI. You should apply for a loan against property because of these advantages. 

Deductions can be claimed as follows:

  • Under Section 24 of the Income Tax Act, you may deduct the interest paid up to Rs. 2 lakh. Or you can deduct the actual amount you have repaid. You may claim the interest deduction only until you have possession of the house.
  • Under Section 24 of the IT Act, processing fees for sanctioned loans, prepayment fees, and service fees are all eligible for deductions.

The following requirements must be satisfied to qualify for the aforesaid deductions:

  • You will be required to present a statement that the lender provides. The statement must prove that you have made the full year’s repayment, including the interest and principal components.

Scenario 2: If your property has been rented out:

The treatment for the principal amount repaid does not change if you elect to rent out the property. Yet, the interest paid is entirely deductible. No limit of Rs. 2 lakh applies to rental property. Your full interest revenue is subtracted from your rental income. Loans taken for renovations, renewals, and reconstruction on the rented property are fully deductible.

Scenario 3: When more than one person owns and lives in the house:

Most people choose to take out a combined loan since it boosts their eligibility for a larger loan. There is no succession problem if a husband and wife own the property. If your spouse is employed and you both took out a mortgage, you can both claim a different deduction in your ITR. Both people may claim a combined total of Rs. 1,50,000.

Section 37 (1) for business purposes and Section 24 (b) for financing any other property may be used to claim mortgage loan tax benefits.

Exemption Under Section 37(1):

According to Section 37(1) of the Income Tax Act, the interest paid and incidental costs can be deducted. Incidental costs like processing fees, paperwork costs, etc., are eligible for deduction. The government would grant these expenses if the money was utilised for business purposes.

Exemption Under Section 24(b):

Salaried individuals may be eligible for a tax break under section 24(b) of the Income Tax Act. This is possible if the loan proceeds are utilised to finance another property. Such people are eligible to claim the interest provided for in this section as soon as the purpose of the loan process is determined.

There is No Exemption for a Mortgage for Personal Use:

No tax exemption can be claimed if the loan proceeds are used for personal reasons. Expenses like a child’s schooling or marriage, travel, paying medical bills, or other comparable circumstances are not acceptable. Loans secured by property taxes are likewise ineligible if the money is utilised to renovate a mortgaged property.

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