Taking a loan against property is a well-known option for individuals in need of funds, such as for business expansion, education, or medical expenses. What many people don't know is that loans against property tax benefits can also make it an attractive financing option. When it comes to availing such loans, there are several benefits available that can help reduce the overall cost of borrowing. One of these includes the tax benefits of loan against property.
For example, Mr. Sharma, who is looking to borrow Rs. 50 lakhs for his daughter's education takes a loan against property with an interest rate of 10% per annum, he would have to pay approximately Rs. 8.26 lakhs in interest over five years. However, with a loan against property’s tax benefits, he could save up to Rs. 2.6 lakhs, reducing his overall interest cost to Rs. 5.66 lakhs. But, how?
You’ll find out in this blog!
Here, we will answer some frequently asked questions about loans against property tax benefits and how they can be leveraged to your advantage.
What Is A Loan Against Property?
A loan against property commonly known as LAP, is a type of loan where you can pledge your property as collateral to borrow money from a bank or a financial institution. The LAP market in India is growing steadily due to its numerous benefits. According to ResearchAndMarkets.com, the LAP market in India is forecast to grow at a CAGR of over 14% to reach a value of $857.87 billion by FY26.
So why is this becoming so popular? You can use the money from the loan against property for various purposes like business expansion, education, medical expenses, or other personal needs. Availing these types of loans can help you secure various benefits like mortgage loan tax benefits, plot loan tax benefits, LAP tax benefits, commercial property loan tax benefit, etc.
The amount of money you can borrow will depend on the value of your property and your income.
You will have to pay back the loan along with interest over a fixed period of time, usually ranging from 5 to 20 years. If you are unable to repay the loan, the lender can take possession of your property to recover the amount of the loan.
Benefits of Loan Against Property
There are several benefits of taking a loan against property in India, including:
Lower interest rates: Loan against property typically has lower interest rates compared to personal loans or credit cards.
High loan amount: Since the loan is secured against property, you can get a higher loan amount based on the value of your property.
Longer repayment tenure: The repayment tenure for a loan against property is usually longer than other types of loans, giving you more time to repay the loan.
Flexible end-use: The loan against property can be used for various purposes like debt consolidation, business expansion, education, medical emergencies, or any other personal requirements.
Tax benefits: Interest paid on a loan against property is eligible for tax deduction under section 24(b) of the Income Tax Act.
Easy eligibility criteria: The eligibility criteria for a loan against property is relatively simple as it depends on the value of the property and your repayment capacity.
Quick disbursal: Since the loan is secured, the approval process is quicker, and the disbursal of funds is also faster.
Frequently Asked Questions:
Is Property Loan Eligible For Tax Exemption?
Yes, property loans are eligible for tax exemptions under certain conditions. The tax exemptions available on property loans depend on how the property is being used and the nature of the loan.
For residential properties, if you have taken a loan for the purpose of purchasing or constructing a house, you can claim a tax deduction on the interest paid on the loan under the head of "Income from House Property" in your Income Tax Return (ITR). Additionally, you can also claim tax deductions on the principal amount repaid under Section 80C of the Income Tax Act.
For commercial properties, if you have taken a loan for the purpose of purchasing, constructing, or renovating a commercial property, you can claim a tax deduction on the interest paid on the loan under the head of "Income from Business or Profession" in your ITR.
You can also claim tax deductions on the depreciation of the commercial property, which can help reduce your taxable income.
Can I Get Tax Benefits On A Loan Against Property?
Yes, you can get tax benefits on a loan against property under certain conditions. The tax benefits will depend on how you are using the loan amount.
If you are using the LAP amount for business purposes, you can claim tax deductions on the interest paid on the loan. This can be done under the head of "Income from Business or Profession" in your Income Tax Return (ITR).
If you are using the LAP amount for personal needs, such as home renovation, education, or medical expenses, you can still claim tax benefits on the interest paid on the loan. This can be done under the head of "Income from House Property" in your ITR.
However, the tax benefits on LAP are only available on the interest paid and not on the principal amount borrowed. The maximum amount of deduction allowed on interest payments for a personal LAP is limited to Rs. 2 lakhs per year.
How Much Loan Is Good For Tax Benefit?
The amount of loan that is eligible for tax benefits varies based on the purpose of the loan and the property being financed.
For a loan taken for purchasing or constructing a residential property, the interest paid on the loan is eligible for tax benefits under the head of "Income from House Property" in your Income Tax Return.
For a loan taken for purchasing, constructing, or renovating a commercial property, the interest paid on the loan is eligible for tax benefits under the head of "Income from Business or Profession" in your ITR.
The tax benefits are a tax deduction of Rs.1.5 lakhs can be claimed on the principal amount and a deduction of Rs. 2 lakhs can be claimed on interest payments under sections 80C and 24. Also, under section 80EE, you can deduct up to 50,000 rupees as a tax deduction and you can deduct up to Rs. 1.5 lakh as tax deduction under section 80C.
Conclusion
A loan against property can be an attractive financing option for individuals and businesses, as it provides the benefit of low-interest rates and longer repayment tenure.The tax benefits available on loans against property can help reduce the overall cost of borrowing and increase the savings for the borrower.
If you want to invest in commercial property, check out our offerings here.
