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Tata Capital > Blog > Loan on Property > Mortgage Loan Tax Benefits in India: Complete Guide

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Mortgage Loan Tax Benefits in India: Complete Guide

Mortgage Loan Tax Benefits in India: Complete Guide

Mortgage loans or loans against property are among the oldest forms of credit. They can become your financial pillar when business loans, gold loans, or other secured funding options are out of reach. You can use any property, whether commercial or residential, to receive a mortgage loan to help you transform your dreams into reality. This type of loan gives the lender the security that they need while disbursing you the loan amount that aligns with your goals.

While mortgage loans give you easy access to funds, they also make you eligible for certain tax benefits. This blog will highlight everything you need to know about mortgage loan tax benefits, from mortgage loan tax deductions to the points to remember while applying for them.

Mortgage loan tax benefits

A mortgage loan is a type of secured funding wherein you can pledge your property as security to the lender to receive financial assistance for different purposes. These loans are also advantageous in terms of tax savings. Here are the mortgage loan income tax benefits that you can avail of:

  1. If you are a salaried individual who aims to build a new property with the loan amount, you can apply for a mortgage loan tax exemption under section 24 (B) of the Income Tax Act, 1961. You can apply for a tax deduction of up to ₹ 2 lakhs on the interest payments.
  1. If you are a business owner willing to invest the loan amount towards the growth of your business, you can also claim mortgage loan income tax benefits. Section 37 (1) allows you to claim tax reduction on the interest and processing fees and other charges related to the loan.

Eligibility Criteria for Mortgage Loan Tax Benefits in India

  • Residential use requirement: You can claim tax benefit on mortgage loan in India under Section 24(B) only if the loan amount from your lender is used to purchase, construct, repair, or renovate a residential property and you provide proof of this use when filing your return. 
  • Interest component focus: Eligibility is limited to the interest paid on the loan and not the principal repayment, with a deduction of up to ₹2 lakh per year for self-occupied property under Section 24(B).
  • Business purpose condition: If you use the loan funds exclusively for business expenses, you can claim deductions on the interest (and in some cases fees) under Section 37(1), provided proper documentation is maintained.
  • Ineligible uses: No deduction applies when the loan is used for personal or non-qualifying expenses such as travel, education, medical costs, or weddings.
  • Documentation and proof: To satisfy eligibility criteria and claim mortgage loan income tax exemption, keep documents like the loan sanction letter, interest certificate from the lender, property papers, and proof of end-use ready when filing tax returns.

Differences Between Home Loan and Mortgage Loan Tax Benefits

  • Scope of tax benefits: Home loans provide structured tax relief on both principal and interest, making them suitable for planned home ownership. Mortgage loans offer limited relief, depending strictly on the end use of funds.
  • Interest deduction eligibility: Home loan interest qualifies for deductions under Section 24 when the property is residential. Mortgage loan interest is deductible only when used for property purchase or construction, aligning with mortgage loan tax exemption India provisions.
  • Principal repayment advantage: Principal repayment on a home loan qualifies for deductions under Section 80C. Mortgage loans do not allow principal deductions, which restricts overall savings under mortgage loan deduction in income tax.
  • Business usage benefits: Mortgage loans used for business purposes allow interest claims as a business expense under Section 37, provided clear documentation is maintained with the lender.
  • Purpose driven applicability: Home loan tax benefits apply automatically for residential purchases. Mortgage loan benefits depend entirely on how responsibly and transparently the loan amount is utilised.

Situations Where Tax Benefits on Mortgage Loan Are Not Allowed

Understanding exclusions is as important as knowing eligibility, especially while planning tax efficient borrowing.

  • Non housing expenses: Tax benefits on a mortgage loan are not allowed when funds are used for weddings, travel, lifestyle upgrades, or personal consumption, as tax laws restrict relief to approved purposes only.
  • Loan used for debt repayment: If the loan amount is utilised to close personal loans, credit cards, or informal borrowings without a qualifying end use, you cannot claim mortgage loan tax benefits.
  • Missing end use documentation: Even when the loan purpose is valid, claims are rejected if borrowers fail to submit interest certificates, utilisation proofs, or supporting records from the Lender.
  • Purchase of non qualifying assets: Using loan proceeds to buy jewellery, land, vehicles, or assets unrelated to housing or business activity makes interest ineligible for mortgage loan tax exemption.
  • Non compliant business claims: Interest claimed as a business expense is disallowed when expenses do not satisfy income tax conditions, lack accounting evidence, or fail proper reporting.

Tax Implications for Top-Up Loans on Mortgage

  • Interest eligibility: Interest on a top up loan qualifies for deduction only when funds are used for property purchase, construction, or renovation, supported by clear end use proof.
  • Self occupied property limits: When the top up amount is spent on improving a self occupied home, interest deduction is allowed within limits prescribed under income tax rules.
  • Combined interest assessment: The interest from the original mortgage and top up loan is assessed together, which can impact the total deductible amount in a financial year.
  • Non-housing utilisation: No tax relief applies if the top up loan is used for travel, education, or personal consumption expenses.
  • Documentation requirement: Proper utilisation records from the Lender are mandatory to claim mortgage loan tax exemption India successfully.

Required Documents and Proofs for Tax Exemption Claims

Here are the key documents required to claim tax exemption in India:

  • Loan sanction document: Keep a copy of the mortgage agreement and sanction letter from your Lender to establish the loan details when filing returns
  • Interest certificate: An annual interest certificate from the Lender showing total interest paid is essential to support your claim.
  • Proof of end use: Documents such as invoices and receipts that clearly show how the funds were utilised help validate eligibility for tax relief.
  • Property ownership papers: Title deeds or property registration documents are needed to demonstrate the connection between the loan and the residential or business asset.
  • Tax filings: Maintain a record of your filed returns along with Form 16 or tax computation sheets to substantiate claims, including any mortgage loan deduction in income tax benefits you intend to claim.

Essential Points for Claiming Mortgage Loan Tax Benefits

Mortgage loans are beneficial financial aid that can help you access a higher loan amount at a lower interest rate while saving tax. However, below are some points to know before claiming mortgage loan tax benefits:

  1. The borrower cannot claim mortgage loan tax benefits if the loan is used for funding education, wedding or other personal events, medical expenses or travel. They can only benefit from tax rebates if the funds are used to build a property or meet business expenses.
  1. Section 80 (C) of the Income Tax Act of 1961 allows some tax benefits only when you have an existing home loan. Those tax benefits are not applicable on loans against property.

Apply for a mortgage loan to save tax!

Mortgage loans offer borrowers benefits such as access to a large sanction, lower interest rates and flexible repayment tenures. Additionally, you can benefit from tax benefits on mortgage interest under sections 24 (B) and 37 (1). Remember to read all the loan-related documents carefully to understand the terms of your chosen lender properly. It is equally essential to shop around, analyse different lenders, and choose a trusted financial institution like Tata Capital.

Tata Capital provides secured and unsecured loans at attractive interest rates. You can streamline your financial needs with a 100% online application process, quick disbursals, and even benefit from our hybrid term loan facility.

2. What is mortgage interest deduction, and how does it work?

Mortgage interest deductions are the tax benefits you can claim with a mortgage loan. You can claim this deduction only when you use the mortgage loan for business purposes or to build another property.

3. Do I need to itemise deductions to claim mortgage loan tax benefits?

No, you don’t need to itemise deductions to claim mortgage loan tax benefits.

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FAQs

What are mortgage loan tax benefits?

When you apply for a mortgage loan to build a new property or to meet business expenses, sections 24 (B) and 37 (1) allow certain tax rebates on the interest paid.

What is mortgage interest deduction, and how does it work?

 

Mortgage interest deductions are the tax benefits you can claim with a mortgage loan. You can claim this deduction only when you use the mortgage loan for business purposes or to build another property.

Do I need to itemise deductions to claim mortgage loan tax benefits?

 

No, you don’t need to itemise deductions to claim mortgage loan tax benefits.

Can I claim tax benefits on a mortgage loan used for education or personal expenses?

 

Tax benefits are not allowed when a mortgage loan is used for education, travel, or lifestyle needs, as such purposes do not qualify for mortgage loan tax exemption.

What is Section 24(b) and how does it apply to mortgage loans?

 

Section 24(b) allows interest deduction only when mortgage loan funds are used for purchasing, constructing, or repairing residential property, subject to prescribed limits and proper documentation.

Are top-up loans on mortgage eligible for tax exemption in India?

 

Top up loans qualify for tax relief only if the amount is used for eligible property related purposes, otherwise the interest paid does not receive mortgage loan tax benefit.

Is Section 80C applicable to mortgage loan tax benefits?

 

Section 80C does not apply to mortgage loans, as principal repayment deductions are restricted to home loans, limiting scope for mortgage loan deduction in income tax.

What documents are required to claim tax benefits on a mortgage loan?

 

Borrowers must submit loan sanction letters, interest certificates from the Lender, property documents, and end use proofs to support valid tax benefit claims.

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