Tax Benefits On Loan Against Property: Tax Deductions And Tax Exemptions

Mortgaging residential or commercial property has been a common practice to raise funds. During times of financial crisis, many people have thought of this option. Instead of selling your property and losing ownership, you can keep your asset as collateral with a financial institution. 

When an individual borrows money after mortgaging a commercial or residential property, it is known as a loan against property. This is a secured form of credit; the time period for repaying this loan can be about 20 years. A noteworthy phenomenon about loan against property is that it is eligible for tax benefits. 

Do you want to explore the tax benefits on loans against property? Keep reading!    

Tax Deductions u/s 24(B)

Salaried employees can avail this tax benefit. When the borrowed amount is used for buying a residential property, an individual can claim tax deduction of up to Rs. 2,00,000. However, taxpayers must create a link between the loan amount and the ultimate use as per section 24(B). 

Deductions are applicable on the interest component of the EMIs and not on the repaid principal amounts. An individual who is using the loan for modifying the mortgaged property cannot claim the tax benefit. Further, this provision is not functional when the amount is used for financing holidays, education or marriage. 

Also Read – Benefits Of Non Banking Financial Company Home Loans

Tax Exemptions u/s 37(1)

Section 37(1) of the IT Act applies to a taxpayer’s expenditures and not on his/her income. Tax benefits on loan against property can be availed on interest payables and relevant charges. So, taxpayers can record the expenses, such as processing fees and interest charges incurred for business management (not personal expenditure or capital expenses) under their income statements. 

This loan amount is not eligible for tax exemptions regardless of it being used for personal or business purposes. If you are opting for a home loan, the amount will be tax-exempt. This is because you are borrowing the money to invest in a property. Similarly, business organisations that take a loan to buy commercial assets get exemptions up to a specific limit.

Also Read – Home Loan Eligibility For The Salaried

Final Word 

To get tax benefits on loan against property, one may require the necessary documents and receipts related to the expenses and interest paid. You can only claim a deduction when the borrowed amount has been spent on renovation, repair, construction or acquisition of a property. 

Navi offers loans against property at 6.46% interest rate. Borrowers can get a loan of up to Rs. 10 crore. Download the Navi app to avail financial assistance without any hassle.    

Frequently Asked Questions

Do Section 80C deductions cover loans against property?

Section 80C offers tax benefits for repaying a home loan. That said, such benefits are not available for a loan against property. Taxpayers can claim up to Rs. 1,50,000 as a deduction for home loan principal repayment in a financial year.     

Are there tax benefits on top-up loans for loans against property?

Usage of borrowed funds determines tax exemptions on loan against property for top-up loans. If an individual spends the additional fund for purchasing or developing a new property, he/she can avail tax benefits under Section 24(B).   

How is Section 80C beneficial?

Under Section 80C, taxpayers can get Rs. 1.5 lakh (maximum) worth of tax deductions for certain investments and expenses. Some of them are as follows:

• Infrastructure bonds
• Tax-saving fixed deposits
• Unit Linked Insurance Plan (ULIP)
• National Savings Certificate
• Sukanya Samriddhi Yojana
• LIC premium
• Home loan principal sum repayment
• Registration fees on property purchase
• Stamp duty for buying property
• EPF and PPF
• ELSS funds

What are the eligibility criteria for Section 24 deductions?

You need to satisfy the following conditions to get deductions u/s 24:

• Loan must be taken after April 1 1999 for constructing or buying a property
• Completion of construction or acquisition within five years from the year-end during which loan has been received
• Issuance of interest certificate for paying loan interest 
• In the following cases, interest deduction will be Rs. 30,000:

1. Borrowing amount prior to April 1 1999, for constructing or buying a house property
2. Availing loan on or after April 1 1999, for renewing, repairing or re-constructing a house property

What are the tax implications on income from house property?

Taxation is applicable on the following earnings as per IT Act, 1961:

• A property’s annual value when it is regarded as let out for tax computation (in case a taxpayer owns more than 2 residential properties)
• Rent from a let out property
• A self-occupied property’s annual value is zero.

A self-occupied property’s yearly value can be negative or nil in case the interest is paid for a home loan. For a let-out property, rent received by a taxpayer will be the gross annual value. In case of considering a property as let out, the gross annual value will be an identical place’s affordable rent.

Before you go… 

• Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Install the Navi app now!
• Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to Rs. 10 crore. Install the Navi app now and get your instant in-principle approval right away! Interest rates starting at 6.46% p.a.
• How about an affordable health insurance policy 👨‍⚕️ starting at a monthly premium of just Rs. 241? Install the Navi app and get your policy under 2 minutes
• Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.