STONES of PHILLY

We usually come across the term “Loan Against Property” in the real estate and housing finance market. Loan against property is a loan that you can avail by keeping an asset as a mortgage with the lender. This asset can either be a house, an owned land, or any commercial property. The loan amount will be sanctioned based on the value of your property. The mortgaged property remains with the lender until the entire loan is repaid. Financial institutions usually provide up to 70% of the value of the property as the loan amount.

Loan against property is a secured loan. It is a long-term commitment with tenures going up to 15-20 years. The essential benefit that such a loan provides is that it finances multiple requirements. There is another significant factor to consider while taking this loan. Individuals, both salaried and self-employed, can claim tax benefits on loans against property. All the quantitative details such as interest rate, repayment tenure, monthly installments are available on the LAP EMI calculator. An online free calculator available on any lender’s website for the calculation of the EMI. The use of such a calculator is very easy. 

Here is a detailed understanding of the tax benefits availed on taking such a loan:

Tax Benefits on Loan Against Property:

• Tax Benefit under Section 37 (1):

When you put your loan for the use of business purposes, the individual can claim a tax exemption under Section 37(1) of the Income Tax Act. Tax exemption can be claimed against the interest paid and the associated processing fees. The tax deduction is filed under the category of business expenses under the IT Act. 

Individuals can claim the tax deductions on the interest part of the payment even if they have missed the actual payment, but not on principal repayment.

• Tax Benefit under Section 24 (B):

This tax benefit is for salaried individuals. When the borrowed funds are used to buy another residential property, tax benefit of up to Rs. 2 lakhs can be claimed. One needs to provide evidence of the established link between the sanctioned loan amount and the end-use of funds under Section 24(B). Individuals can claim the tax deductions on the interest part of the payment even if they have missed the actual payment, but not on principal repayment.

• No exemption in case of a mortgage or for personal purposes

One cannot claim this tax benefit if the borrowed amount is used to transform the mortgaged property. One cannot avail of tax exemptions if the loan amount is put to use for personal expenses like holidays, weddings, marriages, education, etc.

• Tax exemption under Section 80C not applicable

You can claim principal repayments of a home loan under this section, but there are no tax benefits for a loan against property under 80C. The section’s services cannot be utilized for such loans, even if the funds are used to purchase another house.  

Conclusion

Life can throw unexpected and uncertain situations to the most prepared individuals. Whether it be for emergencies or rejuvenating your finances, there comes a time where you may require a large sum of money for personal or professional purposes. With the pandemic leaving jobs and markets on unstable ground, many face a cash crunch and are in immediate need of liquidity. Panic tends to be a natural reaction to the crisis, and people might end up making the sale of their assets like owned land, house, or commercial property for their immediate requirement of cash. Rather than making the asset’s quick sale, it is advisable to mortgage it and fulfill your requirement.

Additional Read: Keep These Six Factors In Mind When You Taking A Loan Against Property

It is quite convenient to get a loan against property while retaining ownership of your assets. Also the additional various types of tax benefits availed by the borrowers make property loan a great choice among the loan types present today. Use your assets and investments to your best advantage.