Tax Advantages: Unveiling Property Loan Tax Benefits

Loans against property are more popularly known as property loans or mortgage loans. These are loans availed of against a residential or commercial property or a piece of land. The pledged security reduces the risk for the lender and therefore, lenders charge a very low rate of interest on these loans. More importantly, the loan money comes with zero end-use restrictions. The LTV ratio can go up to 70%, thereby making loans against property the only loan option that can give borrowers access to funds up to Rs.5 Crore or higher. Loans against property also offer tax benefits, however only in a limited number of cases. In this article, we discuss some of the property loan tax benefits.

Property Loan Tax Benefits: Here's What You Need to Know 

1. Tax Benefits Under Section 24(b) 

Section 24b of the Income Tax Act deals with tax benefits on the interest component of a home loan. When you avail of a loan against property to buy another property, you can claim tax benefits under Section 24b of the Income Tax Act. The maximum limit permissible in this case is Rs.2 Lakh. Please keep in mind that if you wish to avail yourself of loans against property tax benefits under Section 24b, you will have to provide documents to prove that you spent the loan money on buying another property. In the absence of these documents, you won't be able to claim any property loan tax benefits. 

2. Tax Benefit Under Section 80C 

Individuals who avail themselves of a loan against property and use the availed of funds to buy another property can claim tax benefit under Section 24b of the Income Tax Act property on payments made toward the repayment of the interest component of their loan. However, no tax exemption is available on the principal component of the loan. In other words, in this case, an individual cannot claim tax benefits under Section 80C of the Income Tax Act. 

3. Income Tax Benefit Under Section 37(1) 

Under Section 37(1) of the Income Tax Act, individuals who have availed of a loan against property can claim tax benefits on expenses incurred towards business expenses. Yet again, one can claim these tax benefits only if one can provide documents that support one's claim that the money was spent on business expenses

Final Words 

In conclusion, loans against property offer tax benefits, however only in very specific cases. 

If you are planning to avail yourself of a loan against property, talk to a property loan expert and get clarity on how you can claim tax benefits on these loans. More importantly, use a loan against property EMI calculator to calculate your loan EMIs in advance and plan your repayment strategy. Set aside an emergency fund. This fund will protect you in case of an emergency when you suddenly find it difficult to pay your loan EMIs. It will also save you from losing ownership of your property. Loans against property are one of the easiest ways of raising funds in a short span. These loans are also entirely safe, however only when a borrower borrows keeping in mind their repayment capacity and the affordability of the loan.