For years, people have been mortgaging property, whether commercial or residential, to arrange funds in times of need. After all, taking a loan against your property is better than selling it and losing ownership. Moreover, when you take a loan against property, the lender is assured of repayment. So, you will get faster loan approvals and preferential loan terms!

Yet another benefit of loans against property is the tax benefits. However, these tax benefits depend on how you plan to use the loan amount. 

So, let us look at what tax benefits you can claim. We will also explain when these tax benefits apply and when they don’t. 

Tax benefits on loans against property

You can claim tax benefits on loans against property under Section 24(B) and Section 37(1) of the ITA. 

One important thing to note here is that Section 80(C) does not list any tax benefits for a loan against property. Even if you use the funds to buy a home, you will not be able to avail of the tax benefits of home loans listed under Section 80 (C). 

1. Tax benefits under Section 24(B)

Section 24(B) of the Income Tax Act allows salaried individuals to claim income tax benefits on loans against property. If you use your loan amount to fund your residential property, you can claim tax deductions up to Rs. 2 lakhs on the interest paid in one financial year. 

At the time of filing your tax returns, you will have to provide the appropriate documents as proof to establish that the borrowed sum has been used to buy a residential property. 

Note that only the interest payments are tax-deductible and not the principal amount. 

2. Tax benefits under Section 37 (1)

You can claim a deduction under the provisions of Section 37(1) if you use your loan amount exclusively for business expenses. You can claim tax deductions on the interest paid and the fees and charges associated with your loan. 

When can you claim tax benefits on a loan against property? 

You can claim tax benefits if:

  1. You use the loan to purchase a residential property, as per Section 24(B)
  2. You use the loan amount exclusively for business expenses, as per Section 37(1)

No tax benefits are applicable if:

  1. You use the loan amount for medical expenses
  2. You use the loan amount for education 
  3. You use the loan amount for personal reasons like travel, wedding, etc. 
  4. You use the loan amount to remodel or renovate the mortgaged property.

To sum up

Loans against property are a secure financing option. They can be beneficial if you need quick loan approval and better loan terms. However, the tax benefits depend on how you use the loan amount. 

You can claim tax benefits on the interest payable only if you use them to buy a residential property or fund business expenses. 

For easy loans at attractive interest rates and flexible EMI options, turn to Tata Capital. Visit our website to check your loan eligibility and explore our offerings. 

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