Loan on Property

Loan Against Property Tax Benefits: Full Guide

By Tata Capital
06 January 2026
8 mins read
1813

Availing loans against properties, be the property is residential or commercial, is one of the oldest forms of credit. When a person can’t get a personal loan or business loan, keeping his existing property can get him credit from a financial institute. As the loan is availed against property, there are certain tax benefits that one can enjoy for the same. This article will give insight into the tax benefits on loans against property that are available in India and how one can make use of the same.

What is a Loan Against Property?

A loan against property is a secured loan where one keeps the property as collateral security for availing a loan. The value of the loan is derived as per the current valuation of the property. A certain percentage, say, for instance, 70% or 80% of the value of the property is disbursed as a loan amount to the applicant. The borrower can get a loan against property income tax benefits as well, unlike other types of loans.

Many people confuse mortgage loan income tax benefits with tax benefits for home entity loans. These two are not the same. The two loans are only different. A home entity loan is a home loan that one avails for building a home. At the same time, tax benefits on loans against property can be availed against loans taken by pledging the property which is already existing.

Tax Benefits under Income Tax Act for Loan Against Property

Tax provision	Income tax implication on a Loan Against Property
Tax Exemptions Under Section 24(B)	Tax deduction of up to Rs. 2 lakhs on the interest paid
Tax Exemptions Under Section 37(1)	Rebate on the processing fee, documentation fee, and interest if the loan is used to meet business expenses

– Section 24(B)

Under this section, salaried borrowers can enjoy tax exemptions of up to Rs. 2 lakhs if they use the loan against property to buy a new residential property. To avail of this tax benefit, the loan must have been taken for the purpose of purchase, construction, or repair of a residential property. If you use the loan to purchase or construct a property, you can claim the deduction if the acquisition or construction is completed within 5 years of taking the loan.

– Section 37(1)

Under Section 37(1), you can claim tax benefits if you’ve taken the loan to meet business expenses. Borrowers can claim rebates on the processing fee, documentation fee, and even the interest paid on the loan amount. These amounts can be claimed as business expenses during the time of filing the claim. However, it’s important that the loan amount is exclusively used for the purpose of the business.

Eligibility criteria for availing tax benefits on Loan Against Property

To understand tax benefits on loan against property and determine how to save tax on loan against property, it is important to review the eligibility conditions that must be met, which include:

The loan must be availed from a recognised financial institution or lender operating in India

Loan against property tax exemption is available only on the interest paid, not on the principal repayment

The borrowed amount should be used for eligible purposes such as business expansion, property purchase, construction, or renovation

Interest paid on a loan used for business or professional purposes can be claimed as a deductible expense

For personal use, interest deduction is allowed under Section 24(b) only if the funds are used for acquiring or improving a residential property

The borrower must be the legal owner or co-owner of the mortgaged property

Proper loan statements and proof of end-use must be maintained to claim tax benefits

The loan must be actively serviced during the relevant financial year

Documentation required to claim tax exemptions on Loan Against Property

To successfully claim tax benefits on loan against property and understand how to save tax on loan against property, keeping the correct documents in place is essential, which include:

Loan sanction letter issued by the lender

Loan account statement showing interest paid during the financial year

Interest certificate from the lender to support loan against property tax exemption claims

Proof of end-use of funds, such as bills, invoices, or business expense records

Ownership documents of the mortgaged property, including sale deed or title deed

Construction, renovation, or property purchase receipts, if applicable

Business financial statements when claiming interest as a deductible expense

Income tax returns and computation statements reflecting the loan against property tax exemption claim

Also, read – Step By Step Loan Against Property Process

Section 37(1) vs Section 24(b): Detailed comparison for taxpayers

Depending on whether a loan supports business activities or residential property ownership, interest deductions fall under different sections, compared as follows:

Basis of comparison	Section 37(1)	Section 24(b)
Applicable to	Business owners and professionals	Individual taxpayers owning house property
Purpose of loan	Loan used for business or professional activities	Loan used to acquire, construct, repair, or renovate residential property
Nature of deduction	Business expense deduction	Income from house property deduction
Eligible amount	Entire interest amount, if wholly for business use	Up to ₹2 lakh for self-occupied property
Principal deduction	Not applicable	Not applicable under this section
Proof required	Business expense records and loan statements	Interest certificate and property ownership proof
Income head	Profits and Gains of Business or Profession	Income from House Property
Suitability	Ideal for business-funded loan against property	Suitable for personal residential property loans

Also, read – Home loan vs loan against property: What’s the difference?

Situations where Loan Against Property offers no tax exemption

While a loan against property comes with flexible usage, not all uses qualify for tax exemptions. Here are some situations that don’t qualify for tax exemptions:

-Loan used for non-housing purposes

If you use a loan against property for purposes other than purchasing, constructing, or repairing a residential property, the interest paid does not qualify for tax deductions under the Income Tax Act. The only exception is using the funds for business purposes, for which you can claim rebates by proving the funds were used to meet business expenses.

-Non-qualifying expenses

Although you can use the loan against property funds to meet various financial needs, expenses related to education, marriage, travel, or medical bills do not qualify for tax benefits. Therefore, it’s important to carefully understand the tax benefits and implications to select the best strategy for your situation and make informed decisions.

Mistakes to avoid when claiming tax benefits on Loan Against Property

While claiming tax benefits on loan against property can be an effective way to reduce liability and understand how to save tax on loan against property, certain common errors may lead to rejection of claims, making it important to avoid the following mistakes:

Claiming principal repayment as a deduction, even though only interest qualifies for loan against property tax exemption

Failing to maintain proper loan statements and interest certificates from the lender

Using loan funds for ineligible purposes while still claiming tax deductions

Claiming deductions under the incorrect section of the Income Tax Act

Not retaining proof of end-use, especially for business-related claims

Assuming unlimited deductions for personal use without checking applicable caps

Claiming tax benefits without being the legal owner or co-owner of the property

Missing or delaying loan repayments during the relevant financial year

Also, read –Can I get a 100% Loan Against Property?

Summary: Key tax and financial benefits of Loan Against Property

While an income tax rebate on a loan against property is one of the most important benefits of a loan against property, there are many other benefits that one can consider.

-Large sanction: As a loan against property is a secured loan, the amount one can avail as a loan is quite large as around 70% to 75% of the property value can be sanctioned as a loan. So, if someone is looking for a loan for business growth or building a new residential property and is short of cash, then applying for a loan against property will help them get a fast loan along with income tax benefits for a loan against property.

-Lower interest rate: Since the borrower keeps property as collateral, the risk of the lender reduces if the borrower defaults on repaying the loan. This is why the interest rate is also lower for loans against property. So, one can not only enjoy tax benefits for loans against property. So, a loan against property can be used as a two-way sword that helps in saving interest as well as providing tax benefits. The borrower can save a lot compared to other types of loans where large amounts are sanctioned.

-Longer repayment tenure: Another benefit of availing of a loan against property is the longer repayment tenure. These loans can be paid over many years as per the borrower’s preference. Usually, no personal loans or business loans have much longer tenure. Since it is a secured loan, the tenure can be decided at per convenience of the borrower and stretched over many years.

Also, read – Why NBFCs are the Best Choice for Loan Against Property?

Conclusion

So, a loan against property can be used for tax savings as there are different tax rebates on loans against property. That said, the borrower must consider the use of the funds as that would determine his eligiblity for a loan against property for availing of the tax benefits. Availing of a loan against property from Tata Capital is comparatively easier as it is a secured loan and beneficial for the borrower at the same time for multiple aspects.

Apply For Loan Against Property

FAQs

Is a loan against property taxable?

No, the loan amount received from a loan against property is not considered taxable income. It is a secured loan and is not subject to income tax. However, if you generate any income using the loan amount (such as investment returns), it might be taxable.

Does a loan against property come under 80C?

No, a loan against property does not come under 80C. Section 80C provides tax deductions for principal repayment of a home loan, life insurance premiums, and other specified investments.

How much interest is paid on a loan against property?

The interest rate on a loan against property varies depending on the lender, loan amount, tenure, and your credit profile. Generally, interest rates for loans against property range between 8% and 15% per annum.

How much ITR is required for a loan against property?

Most lenders require borrowers to submit their ITRs for the past 2-3 years to process a loan against property application. This helps the lender assess the borrower’s income stability and repayment capacity.

Can a loan against property be converted to a home loan?

No, it is not possible to convert a loan against property to a home loan. However, you can close the existing loan and take a new home loan if you wish to buy or construct a house.

Can salaried individuals claim tax benefits on a loan against property in India?

No, it is not possible to convert a loan against property to a home loan. However, you can close the existing loan and take a new home loan if you wish to buy or construct a house.

Can salaried individuals claim tax benefits on a loan against property in India?

Yes, salaried individuals can claim tax benefits on loan against property if interest is used for eligible purposes, helping understand how to save tax on loan against property.

Is the principal repayment on a loan against property eligible for income tax deduction?

no, principal repayment is not deductible. loan against property tax exemption applies only to interest paid, subject to usage and applicable income tax provisions.

What documents are necessary to claim tax benefits for loan against property under Section 24(b) or 37(1)?

Loan statements, interest certificate, proof of end-use, property ownership documents, and business records are required to claim tax benefits on loan against property correctly.

Is there a difference in tax exemption between using the loan for business vs. personal use?

Yes, business use allows broader deductions under Section 37(1), while personal use has limits under Section 24(b).

What are the most common reasons for rejection of a tax benefit claim on loan against property?

Incorrect section claims, missing documents, ineligible fund usage, ownership issues, or claiming principal repayment often lead to rejection when learning how to save tax on loan against property.

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Loan Against Property Tax Benefits: Full Guide

What is a Loan Against Property?

Tax Benefits under Income Tax Act for Loan Against Property

Eligibility criteria for availing tax benefits on Loan Against Property

Documentation required to claim tax exemptions on Loan Against Property

Section 37(1) vs Section 24(b): Detailed comparison for taxpayers

Situations where Loan Against Property offers no tax exemption

Mistakes to avoid when claiming tax benefits on Loan Against Property

Summary: Key tax and financial benefits of Loan Against Property

Conclusion

FAQs

Is a loan against property taxable?

Does a loan against property come under 80C?

How much interest is paid on a loan against property?

How much ITR is required for a loan against property?

Can a loan against property be converted to a home loan?

Can salaried individuals claim tax benefits on a loan against property in India?

Can salaried individuals claim tax benefits on a loan against property in India?

Is the principal repayment on a loan against property eligible for income tax deduction?

What documents are necessary to claim tax benefits for loan against property under Section 24(b) or 37(1)?

Is there a difference in tax exemption between using the loan for business vs. personal use?

What are the most common reasons for rejection of a tax benefit claim on loan against property?

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