How Can You Avail Tax Benefits on Loan Against Property? Check now

When facing a financial crisis or in urgent need of funds, a Loan Against Property (LAP) can be an advantageous choice.

A Loan Against Property is a secured loan where banks or non-banking financial companies (NBFCs) offer funds against the pledge of your property. This option is not only about accessing significant sums but also about retaining ownership of your property while utilizing its financial value.

Whether for covering medical expenses, starting a new venture, or funding your child’s education, LAP provides a pathway to substantial financial resources with relatively lower interest rates and flexible repayment terms up to 20 years.

Mortgaging property to acquire this loan allows you to secure funds without losing ownership of your property. Apart from this feature, one more striking feature is the tax benefits on loan against property that the borrowers can avail on. However, the benefits depend on how the borrower utilises the loan amount.

What are Tax benefits on loan against property?

One can avail tax benefits on loan against property under sections of the Income Tax Act, two of which include:

1. Section 24(B)
2. Section 37 (1)

One significant point to remember is that you cannot claim tax benefits under section 80C of the Income Tax Act for a Loan against property.

1.Tax benefit under 24(B)

If you use the funds from your LAP to purchase a residential property, you can claim a tax deduction on the interest paid up to Rs. 2 lakh each financial year. It’s important to note that this benefit applies only to the interest component of your repayment, not the principal.

The deduction will only be permitted if the capital is obtained on or after 1st March 1999 and the construction/acquisition of house property is completed within a period of 5 year.

2.Tax benefit under 37 (1)

For those using LAP funds for business purposes, Section 37(1) provides broader advantages. You can claim deductions for interest payments, processing fees, and documentation charges associated with the loan. This section essentially allows you to deduct any non-capital and non-personal expenses incurred through the use of the loan, making it a powerful tool for business financing.

No Tax Exemptions allowed on Loan under Section 80C

Section 80C of the Income Tax Act specifically deals with tax benefits related to home loans. However, it is important to note that, tax benefits under section 80C do not extend to loans against industrial, residential, or commercial property.

As per the provisions of section 80C, if an individual obtains a home loan for purposes such as purchasing another property, house construction, repair, or renovation, they can claim tax deductions up to INR 1.5 Lakhs on repayment of the loan’s principal amount.

Additionally, the individual may include the stamp duty and registration fees paid, but these should be within the permissible limit for principal repayment.

On the contrary, when it comes to a Loan against property, it is essential to understand that the principal amount for this type of loan does not qualify for tax deductions.

No tax exemptions are allowed in the following scenarios.

The Tax exemption is not applicable under the following situations:

• When you use your funds for personal expenses such as marriage, travel, or medical expenses.
• When you use your loan amount for educational purposes.
• When you use your funds for medical bills.
• When you use your funds to renovate a mortgaged property.

Also Read: Top 6 Advantages of Loan Against Property in India

Conditions for availing Tax benefits on Loan against Property

Both salaried Individuals and Self-employed professionals are eligible to apply for a loan against property, and they may enjoy tax benefits on a loan based on how the loan amount is utilised.

Tax exemption or Tax Deduction for loan against property are applicable in two specific situations-

• When the loan amount is used by salaried borrowers for the construction or purchase of a new residential house
• When the loan amount is utilised for business expenses

Tax benefits on top-up loans on Loan against property.

Tax benefits can also be availed on top-up loans. These loans are additional loans offered to the borrowers by a financial institution and can be obtained when you require additional credit as a top-up of your existing loan amount. This option allows you to access funds beyond your sanction limit.

When you apply for a top-up loan associated with a home loan, it is considered a personal loan. However, in the case of a loan against property, you do not need to provide additional collateral for a top-up loan since the property itself serves as collateral.

Tax deductions for a top-up loan are different from loan against property tax benefits. It includes the following deductions:

• For a Loan against Property used for purchasing a residential property, you can avail a maximum deduction of up to INR 2 Lakhs under section 24(B). In contrast, the deduction on top-up loans is limited to INR 30,000. Additionally, you can claim this deduction if the residential property is self-occupied.
• You can enjoy the property income tax benefit on a top-up loan against property only if the funds are used for construction or renovation purposes.
• If in a particular financial year, the total interest paid on both home loan and top-up exceeds INR 2 Lakhs, you can carry forward the excess amount and continue to claim tax benefits on the loan against property for up to 8 years.

How to apply for a Loan Against Property through OneNDF?

OneNDF streamlines this process by allowing individuals to apply for Loan Against Property online and match with lenders according to their unique Loan Against Property requirements:

1. Open the official website of OneNDF and SIGN UP. 
2. You can register by entering your mobile number and clicking on ‘Next’.
3. You would receive an OTP, through which you can authenticate your identity.
4. Once authenticated with OTP, you can upload your documents and apply for a Loan Against Property at attractive interest rates as per your requirements.
5. Once the loan application form is submitted, the platform connects you with the best lender available as per your requirements. It helps you get a Loan Against Property at a competitive interest rate.

Why Choose OneNDF?

Choosing OneNDF means more than just securing a loan; it’s about empowering your financial decisions with expert advice and holistic support. Our platform connects you with the best lenders, offers competitive rates, and provides a seamless application process. We’re committed to helping you navigate the complexities of financial products effectively and efficiently.

Ready to Get Started?

Don’t let confusion about tax benefits and loan options hold you back. Contact OneNDF today to discover how much you could save on your next LAP and make wise financial decisions that pave the way for a secure future. Connect with us now and take the first step towards maximizing your financial potential.

To sum up

A loan against property is a hassle-free way financing option. It is also a quick way to arrange funds if you have residential, co-owned, industrial, or commercial property to provide as collateral. In order to get hassle-free and quick funds along with low-interest rates and flexible repayment tenures, turn to OneNDF.

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Frequently Asked Questions – Tax Benefits on Loan Against Property