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Tax Benefit on Loan Against Property

January 19, 2024 • 671 views

Wondering if you can avail tax benefits on a Loan Against Property? And if yes, how? Getting a Loan Against Property (LAP) could be a great option for individuals as well as businesses. Along with tax benefits, a mortgage loan will also provide you with financial support. 

You can use it to meet your business needs, medical expenses, or even your child's education. Learn more about the tax benefit on Loan Against Property that will help you in saving on loan repayment.

Various Ways to Get Tax Benefits on a Loan Against Property

A Loan Against Property is a common way of meeting your urgent financial requirements. You can refer to the below points to know about the different tax benefits that you would receive on getting a Loan Against Property:

1. Tax Benefit Under Section 37(1) for Loan Against Property

Section 37(1) for Loan Against Property allows businesses to claim a tax deduction on the interest paid during repayment of a Loan Against Property. This is only possible if businesses use the funds received via a loan to meet their business needs.

The government of India issued this provision to help entrepreneurs expand their ventures and create job opportunities for others. So, if you are an entrepreneur, make sure to claim a tax benefit on LAP to save money and generate more working capital for your business.

2. Tax Benefit for Loan Against Property Under Section 24(b)

Under the Income Tax of 1961, Section 24(b), individuals are allowed to claim tax benefits on the interest paid for their loan against residential or commercial property. This allows salaried individuals to receive tax benefits up to Rs. 2,00,000 for residential properties.

The amount of tax exemption is calculated on the sum paid as interest and not on the principal. This tax deduction significantly reduces the financial burden of the borrowers repaying their Loan Against Property. 

3. No Section 80C Tax Benefit for Loan Against Property Borrowers

Borrowers can enjoy tax benefits for their Loan Against Property as per Section 37(1) and Section 24(b). However, it is important to understand that individuals or businesses will not receive any tax exemption as per Section 80C for any Loan Against Property. The key reason behind is that you are eligible to receive tax benefits under this Section only for fully constructed residential properties.

Also Read - 6 Ways a Loan Against Property (LAP) Can Help You Make Use of Your Property

When Can You Claim Tax Benefits on a Loan Against Property?

Understanding the right time for claiming your tax benefits is vital. You are only eligible to claim your tax benefit for paying the interest on your loan after the process of acquisition and construction is complete. However, businesses are eligible to claim their tax benefits for the same financial year in which the interest is paid on the Loan Against Property.

It is important to know that using the loan amount for the following purposes would not allow you to claim tax benefits:

  • For Personal Use: Using the funds for personal use will not qualify you for tax benefits. For example, paying for your marriage, education, or vacation through this loan would not avail tax benefits.
  • To Renovate the Property: Utilising the funds received on the loan to transform or renovate the mortgaged real estate will make you ineligible to claim tax benefits on your Loan Against Property.

Also Read - Major factors to consider while applying for Loan Against Property

To Conclude

Understanding the different tax benefits on Loan Against Property will allow you to have less financial burden during credit repayment. However, you must use the money only to cover the allowed expenses to enjoy the maximum benefit. Thus, a Loan Against Property is a smart financial strategy to meet emergency needs for funds while helping you save money with different tax benefits.

If you are planning to get a LAP to cover your unplanned expenses, apply for Poonawalla Fincorp’s Loan Against Property

Frequently Asked Questions

  • What tax benefit can I claim via Section 24(b)?

As per Section 24(b) of the Income Tax Act, 1961, you can avail tax exemptions worth up to Rs. 2 Lakh for residential properties. This tax exemption is calculated based on the interest that you paid while making the loan repayment.

  • What are the tax benefits that businesses receive from taking a Loan Against Property?

Businesses can also claim tax benefits on the interest paid while repaying the loan. Tax exemptions can only be availed by a business if they use the funds received via a loan to meet business needs. For example, business expansion or buying new machinery.

  • Which things make individuals ineligible for tax benefits on Loan Against Property?

Using the funds received through Loan Against Property for personal use, will not attract tax exemptions. This means you will not receive tax benefits for using these funds to finance education, marriage, or vacation. Or if you decide to use these funds to renovate the mortgaged property, then no tax benefit will be availed for you.

  • Which things make both businesses and individuals ineligible for tax benefits on Loan Against Property?

If an entrepreneur takes a Loan Against Property and decides not to invest that money back into the business, it will not be eligible to claim tax benefits. Similarly, if an individual uses the Loan Against Property amount to fund personal expenses, they cannot claim a tax benefit.  

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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