Mortgage Loan Tax Benefits under Income Tax Act

A Loan Against Property is a secured advance amount that users get against their mortgaged commercial or residential property. This amount of funds is not restricted to being used for a certain purpose but can be used for any requirements including daily expenses. 

Such loans can be extended to tenor, which is why this loan is known to be an affordable option for many. 

This amount can be used for many purposes that include your daily expenditure or even specific expenditure such as: 

• Education
• Home Renovation
• Wedding
• Debt Repayment
• Business Purposes

With a mortgage loan comes the tax that needs to be paid. Hence, the most frequent question asked is will an individual be able to avail any mortgage loan tax benefits? Mortgage loan tax benefits can be availed from 

Read on to know what the tax benefits are that one can avail of if opted for Loan Against Property and also understand the different sections and property tax rebate on the same. 

Features of Loan Against Property

Loan Amount

It is to be noted that the loan amount an individual borrower can avail of from a financial institution varies from bank to bank. The industry standard is at least 60% of the property’s market value. So the amount can range from between Rs 10 Lakhs to Rs 7.5 Crores.

Interest Rates and Tenure

The borrower can avail of lucrative interest rates from a LAP loan as the nature of the loan is secured. The banks are also inclined to provide flexible repayment tenure to the borrowers against the loan.

EMIs

The banks have designed multiple EMI options for borrowers so that they can repay the loan amount without any hassle. The borrower can choose from the repayment plan that complements their budget and facilitate the process conveniently.

Loan Processing

The bank easily processes LAP loans without any hassle or delay. It generally takes 3-4 days to conclude the application process. The applicant must produce minimal documents, and the loans are disbursed efficiently.

Broad Age Bracket

Any individual between the age of 21 years to 65 years can apply for a loan against property. This broad bracket encompasses a large population to avail of this lucrative financial product to satisfy their requirements.

Tax Benefits on a Loan Against Property

The process to mortgage the property to access funds has been availed of significantly. It is always beneficial to mortgage off property instead of selling it to obtain funds for any emergency or investment. The Loan Against Property tax benefits depends on how the borrower will utilise the funds acquired. It is to be noted that only the interest on the loan is eligible for tax exemptions, not the principal repayments. A borrower can avail of mortgage loan tax benefits under two Sections that is Section 37(1), which is for commercial purposes. And Section 24(B) to fund other properties.

Tax benefit under Section 24(B)

This section provides Loan Against Property Tax benefits to the salaried individual. The borrower can avail of a tax benefit of up to Rs 2 Lakhs if they allocate the funds to obtain a new residential property. The interest payments on such loans are eligible for tax exemptions.

Tax Benefits Under Section 37(1)

As per the Income tax act, the borrowers can avail of a loan under this section on the expenses. This, in turn, enables businesses to claim tax benefits on the expenses incurred during business operations. A standard LAP loan is not exempted from taxes. But as the funds obtained from the loan are allocated towards business expenses, the loan is eligible for tax benefits. Businesses can also obtain deductions if they apply for funds to obtain commercial assets.

No Exemptions of Tax Benefits for Different Scenarios

The borrower could not claim a Loan against Property tax benefits if the funds were raised for reasons such as school, marriage, travel and medical expenses. However, an individual can claim tax benefits against a house loan. As per Section 80C of the Internal Revenue Code, the tax benefits on loans against property are only exclusive to Section 24(B) and Section 37(1).

Tax Benefits on Top-up Loans:

Financial institutions allow borrowers to raise additional funds on their existing home loans if they meet the prerequisites. The applicant can avail of lower interest rates on such loans if they produce enough documents to authenticate that the funds are allocated for acquiring, repairing, and renovating a residential property.

The tax benefits availed of from such loans are limited to the amount of Rs 30,000. And the deductions are only eligible if the property is self-occupied. However, there is no cap on deductions if the property was for rent at the time of repairs and renovations.

The Loan Against Property tax benefits can be claimed concerning how the allocated funds are utilised. A borrower can only claim a deduction if the funds are employed to purchase the property under section 24(B) and Section 80C. But it is to be noted that the loan interest is not eligible for deduction if the funds are used for repairs, alterations and renovations on existing properties.

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