How Much Tax Benefit Can Be Availed on Loan Against Property?

What if your property could be more than just a home? Imagine turning it into a financial asset that helps you fund new dreams and unlock some other perks along the way.

Loan Against Property is a powerful way to fund your dreams and create joyful moments. But did you know about the hidden advantage to this financial move? When you apply for a Loan Against Property, you can enjoy certain income tax benefits too.

Read on to discover how you can get income tax benefits on Loan Against Property and make the most of a financial decision.

Also Read: What is Loan Against Property? Features, Eligibility, Documents, and more

Understanding Loan Against Property Tax Benefits

While the government does allow you to avail income tax benefits on loan against property or property loan, the specifics depend on the purpose of the loan.

If the loan is used for business purposes, the interest paid can be claimed as a business expense and help reduce your taxable income. Similarly, if the loan is used for purchasing another property, the interest paid can be claimed under Section 24(b) of the Income Tax Act, up to a limit of INR 2 lakh per annum for self-occupied properties.

However, there are no tax benefits linked to loan against property if the loan is availed for personal use, such as for vacation or wedding-related expenses. Understanding these nuances can help you make informed decisions and maximize your tax savings.

Loan Against Property Tax Benefits: Key Sections to Note Under Income Tax Act

Find below a list of key sections under the Income Tax Act of 1961 that allow availing tax benefits on Loan Against Property -

Section 24(b): If you take a loan against property to buy a new home, you can claim a tax benefit of up to INR 2 lakhs. This deduction applies to the interest component of your monthly EMIs, making your home purchase more affordable.

Did You Know? You can easily determine the interest component and monthly installments on your Loan Against Property by using an EMI Calculator online.

Section 37(1)
For those using a loan against property for business needs, Section 37(1) offers various tax benefits. You can claim deductions on the interest paid, processing charges, and documentation charges incurred as business expenditures. This can significantly reduce your taxable income and improve your business’s financial health.

It’s important to note that both sections 24(b) and 37(1) provide tax benefits only on the interest paid, not on the principal amount. Understanding these provisions can help you optimize your tax savings and make the most of Loan Against Property.

How Can You Avail Tax Benefits on Loan Against Property?

Availing tax benefits on a Loan Against Property can be a smart financial move if done correctly. Here’s how you can avail tax benefits on Loan Against Property and easily navigate the process to maximize your tax savings:

Identify your Purpose: The tax benefits on Loan Against Property vary based on the purpose of your loan. It mainly depends on whether the loan is for purchasing a new home or for business purposes, as discussed above.

Maintain Documentation: Maintaining clear documentation of how the loan amount is used, including receipts, invoices, and other relevant documents, is crucial for claiming tax benefits.

Claiming Under Section 24(b): If you’ve taken the loan against your mortgaged property to buy a new home, you can claim tax deduction of up to INR 2 lakhs per annum on the interest paid, under Section 24(b). Ensure that you have all the necessary loan documents and proof of payment ready for tax filing.

Claiming Under Section 37(1): For loans used to meet business needs, you can claim deductions on the interest paid, as well as processing and documentation charges, under Section 37(1). Keep detailed records of all business expenses related to the loan to support your claim.

Maximise Tax Savings: When filing your income tax return, include the relevant details and documents to support your claim for deductions. Consulting with a tax advisor can ensure that all information is accurately presented and that you are maximizing your benefits.

By following these steps, you can effectively avail tax benefits on Loan Against Property, optimizing your financial strategy and maximising your tax savings. This strategic approach can significantly enhance your financial health and support your long-term goals.

Loan Against Property Tax Benefits: Eligibility Criteria

While a loan against property can offer significant tax benefits, there are specific situations where these benefits do not apply. It’s essential to understand these scenarios to avoid any financial surprises.

As the usage of Loan Against Property is vast, using the funds for fulfilling needs, other than housing or business, doesn't qualify for tax exemption. You will not receive any tax benefits if you use the funds for personal expenses such as:

• Marriage: Loan Against Property used for wedding expenses does not qualify for tax benefits or tax savings.
• Education: Using Loan Against Property for educational purposes, for yourself or your family, is not eligible for tax benefits.
• Vacation: If you use the Loan Against Property to fund a vacation or a leisure activity, no tax benefits can be availed.

To ensure you obtain tax benefits on a Loan Against Property, it's crucial to use the funds specifically for housing-related expenses or business needs. By adhering to these guidelines, you can maximize your tax savings and make the most of your financial planning.

Also Read: What is Loan to Value Ratio (LTV) in a Loan Against Property?

After getting clarity on Loan Against Property eligibility and tax benefits on Loan Against Property and carefully considering these key aspects, you can make informed decisions regarding a loan against property. This approach ensures that you leverage the loan effectively while maximizing your tax benefits and minimizing financial risks.

Making wise choices in lender selection and loan usage will ultimately support your long-term financial goals.

To understand more about Loan Against Property and related information, refer to our Knowledge Centre.

Godrej Capitalis the financial services arm of Godrej Group which offers home loans, Loan Against Property and other secured loans. With innovative products and offerings, customers can get hassle-free loans on easy terms and conditions. Click here to learn more about the offerings.

Also Read: Common Mistakes to Avoid While Borrowing LAP

Related FAQs

1. What are the benefits of a Loan Against Property?
   Since Loan Against Property is a secured type of loan, it usually comes at a low interest rate.
2. How much ITR is required for a Loan Against Property?
   When you apply for Loan Against Property, typically the last 2-3 years of Income Tax Returns (ITRs) are required.
3. How can I save tax on my Loan Against Property?
   You can claim a tax deduction on the interest amount paid on your Loan Against Property under section Section 24(b) and Section 37(1) depending upon the usage of funds.
4. Can we claim a tax deduction on Loan Against Property?
   You are eligible for tax deductions of up to INR 2 lakh if you use the Loan Against Property towards your home or business.
5. Can I avail tax benefits for Loan Against Property if I have an ongoing Home Loan?
   If you have availed tax benefits on an existing Home Loan, you can avail tax savings for Loan Against Property too. However, there are no tax benefits under Section 80C of the Income Tax Act.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially.
The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements.
Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com