Loan Against Property: How to Claim Tax Benefits For LAP Loan
A loan against property is a great facility for property categories. This facility has become more popular in recent years. Banks as well as NBFCs provide this loan. This blog discusses income tax sections offering tax benefits on loans against property.
Loan Against Property of any kind, whether commercial or residential, has long been a common practice when a significant amount of money is required for any need. Putting the property up as collateral with an NBFC or Bank can be a better choice than selling it off. But do you know you can avail a tax benefit if you avail Loan Against Property? To help you more with the information, This blog will guide you towards availing tax benefits in loans against property.
Income Tax Sections Offering Tax Benefits on Loans Against Property
Here are some of the income tax sections offering tax benefits on loans against properties:
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Benefit from Income Tax Section 24(B) | For Loan Against Property
You can avail of a tax benefit of a maximum of 2 lakhs if you are planning to use your funds for financing the new house. This benefit can be availed in interest amount paid. As proof to avail of the benefit, one has to provide an adequate connection of the investment where the money has been used.
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Benefit from Tax Section 37(1) | For Loan Against Property
Section 37(1) tax deductions are applicable if the loan amount is used for business purposes. If a taxpayer borrows money from a financial institution, the interest paid on the loan will be considered an expense and can be claimed by the taxpayer against the income earned by the business. This is calculated at the rates fixed by the Income Tax department. Section 37(1) of the Income Tax Act, 1961 allows the deduction of all incurred expenses, losses, etc.
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Tax advantages for top-up loans on Loan Against Property
Existing house loan borrowers are eligible to apply for “top-up loans,” which have interest rates that are lower than those of personal loans. Any objective may be pursued with the top-up loan as long as it complies with the regulations of the bank or NBFC. If you have all the necessary documentation to demonstrate that the top-up loan was used for the purchase, construction, repair, or renovation of a residential property, you may be eligible for tax benefits related to top-up loans.
Under this top-up loan benefit, The maximum deduction allowed is Rs. 30,000, as opposed to the Rs. 2 lakh deductions offered on interest payments. This is only applicable to the properties possessed as self-occupied.
Benefits of Home Loan Against Property
Costly expenses can be best funded with a loan against property. Due to its attractive interest rates and significantly lower borrowing costs, many borrowers favor it over a personal loan. According to your eligibility and needs, a Loan Against Property is a secured mortgage loan that enables you to mortgage your property and apply for any amount.
The main advantage of a Loan Against Property is that it has no restrictions on its final use, making it ideal for costs not covered by a Home Loan, such as the cost of an abroad school, a wedding, or business development. However, in availing of tax benefits, some restrictions may apply.
What is Not Covered in Tax Benefit Exemption | For Loan Against Property
There is no provision for tax exemption if the loan amount is utilized for medical expenses, travel, or education. There are various provisions in Section 80C that permit you to claim tax advantages. You may be eligible for tax benefits even if you have an active mortgage, however, loans secured by property are not eligible for such benefits under Section 80C of the Income Tax Act.
Conclusion
There are many people who might land up in a situation where they require a sum of amount. In such cases, the Loan Against Property can come as a savior to help them get sufficient funds while ensuring they don’t need to sell their property. While tax benefits in loans against property can be a lucrative option, it can be considered a preferred option to borrow money when needed.
