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How can you Avail Tax benefits on your Loan Against Property?

  • Highlights

  • Exemption under Section 37(1) and Section 24(B)

  • Exemption under Section 37(1) for business expenses

  • Exemption under Section 24(B) for residential property

  • No exemption for personal purposes

Loan against property can be availed by both salaried as well as self-employed professionals to borrow funds by pledging residential or commercial properties as collateral. For instance, Bajaj Finserv’s Loan Against Property offers a maximum loan amount of Rs.1 crore for salaried individuals and a maximum of Rs.3.5 crore for self-employed individuals.

Being a secured loan, loan against property offers competitive interest rates as opposed to unsecured loans. They are long-term commitments with tenors going up to 20 years. For example, Bajaj Finserv offers loan against property with a tenor ranging from 2-20 years to salaried individuals and 18 years to those who are self-employed.

Tax Benefits from Loan Against Property

While a loan against property gives you funds for your varied needs, did you know that you could also claim tax exemption on the interest paid for availing the loan? Yes, a loan against property enables you to save on the tax amount payable. Here’s how you can avail tax benefits from a loan against property:

1. You can claim tax exemption from a loan against property if the loan amount is utilized for business purposes. In such cases, benefits can be claimed against interest paid and associated fees and charges incurred. These payables can be claimed as business expenses under Section 37(1) of the Indian Income Tax Act.

2. Salaried individuals can also claim benefits under Section 24(B) of the Income Tax Act if the borrowed funds are utilized for funding the purchase of another residential property. The maximum deduction one can claim is Rs.2 lakh. However, you will only be allowed to enjoy the benefits if you could successfully establish a link between the borrowed funds and their end-use in accordance with Section 24(B).

Additional Read: Fees and Charges for Loan Against Property: Explained

3. You can’t claim tax benefits if you are utilizing the funds to transform the mortgaged property.

4. Both Section 37(1) and Section 24(B) enables you to claim deductions only on the interest paid and not on the principal repaid.

Loan Against Property 6 things you should know

5. You can’t avail tax exemptions if the borrowed sum is utilized to fund personal expenses like marriage, education, vacation, etc.

6. Unlike home loans, you cannot claim tax exemption form loan against property under section 80C, as under this section an individual can only claim exemption against fully constructed residential properties.

Additional Read: How To Apply For A Loan Against Property: A Step By Step Guide

7. You cannot claim benefits by mortgaging residential properties for a loan against property.

Thus, a loan against property apart from providing funds for varied needs also helps you save on taxes.

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