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A loan against property interest rate is usually lower than unsecured loans, making it a popular way to unlock funds using your property as collateral. You may wonder how this affects your taxes and if you can save money through deductions. Understanding which parts of the loan qualify for tax benefits, when they apply, and your loan against property eligibility can help you avoid costly errors. Knowing how interest payments affect your taxable income ensures you get the most from your loan while following tax rules. Missing these benefits could cost you more than needed.
A loan against property (LAP) lets you borrow money by using your residential or commercial property as collateral. Because it’s secured, lenders offer lower loans against property interest rates and larger loan amounts than unsecured loans. You get a lump sum that you can use for any purpose, such as education, business, or medical needs.
LAP usually has longer repayment terms, which makes monthly payments easier to manage. However, if you fail to repay, the lender can take legal action to recover the loan, including selling your property. It’s a flexible and affordable way to access funds when you need a significant amount.
Additionally, some lenders offer loan against property without income proof, expanding access for those with irregular income or self-employed status, subject to eligibility checks.
You can claim tax benefits on a loan against property (LAP) under Section 24(B) and Section 37(1) of the Income Tax Act. Note that Section 80(C) does not apply to LAP, so principal repayments do not qualify for deductions, even if the loan is used to purchase a home.
Interest paid on a LAP used for purchasing, constructing, or renovating a residential property is eligible for a deduction of up to ₹2 lakh per financial year. Only the interest component qualifies for this deduction; principal repayments are excluded. You must provide evidence showing the loan amount was used for residential property purposes when filing tax returns.
If you use the loan exclusively for business purposes, the interest paid along with associated loan fees and charges can be claimed as a business expense deduction under Section 37(1).
Top-up loans allow you to borrow additional funds over your existing LAP without providing extra collateral. Tax benefits on top-up loans are limited compared to the main loan:
Interest deduction on top-up loans is capped at ₹30,000 under Section 24(B), unlike the ₹2 lakh limit for the main loan.
Deductions apply only if the top-up loan funds are used for residential property construction or renovation.
If the combined interest on the main and top-up loans exceeds ₹2 lakh in a year, the excess deduction can be carried forward for up to 8 years.
It is crucial to understand the circumstances in which you cannot claim tax benefits on a loan against property (LAP). Tax deductions are strictly linked to how the loan amount is utilised, and certain uses disqualify you from exemptions:
When the loan proceeds are used for personal expenses such as vacations, weddings, or buying consumer goods, tax benefits will not apply
If you use the loan amount for business purposes without following Section 37(1) provisions, no tax deduction is allowed under Section 24(B)
Loans taken to purchase assets other than your residential property, such as vehicles, jewellery, or commercial equipment, do not qualify for tax exemptions
Using the loan to repay existing debts or other loans also disqualifies you from any tax benefits
Without clear proof that loan funds were used for home construction, renovation, or purchase, tax deductions will be denied.
Maintaining proper records and ensuring the loan is used solely for eligible purposes are essential to claiming tax benefits without issues.
Using a loan against property wisely can offer several tax advantages that reduce your overall cost of borrowing:
Deduct interest paid on loan amount used for property repairs or construction
Benefit from comparatively lower loan against property interest rates
Potential to improve your home’s value while saving on taxes
Avail of tax benefits even if you do not show income proof, provided you meet eligibility criteria
You can claim tax benefits on the interest paid in the financial year, provided the loan amount is used for eligible purposes and certain conditions are met:
Tax benefits apply only if the loan is used to purchase, construct, or renovate a residential property
The property must be registered in your name
Construction or renovation should be completed within five years from the end of the financial year when the loan was taken
You can claim tax benefits if:
You use the loan for purchasing or renovating a residential property (Section 24(B))
You use the loan exclusively for business expenses (Section 37(1))
No tax benefits apply if you use the loan for:
Medical expenses
Education costs
Personal expenses like travel, weddings, or holidays
Remodelling or renovation of the mortgaged property itself (non-eligible under LAP tax benefits)
Follow these steps to apply for a loan against property online:
Visit the official website of your chosen lender
Go to the loan against property section and select ‘Apply Now’
Complete the online application form with accurate personal and financial details
Upload the necessary documents, such as bank statements, income proof, address proof, and property papers
Submit your application
After the lender verifies your details and documents, your loan will be approved, and the funds will be transferred directly to your bank account.
A loan against property provides access to substantial funds at lower interest rates, with valuable tax benefits under Sections 24(B) and 37(1). Understanding your loan against property eligibility and how to use tax benefits correctly can help you save more and avoid mistakes. Whether applying for a loan against property without income proof or considering the interest rate, proper planning and documentation make this loan an effective tool for meeting your financial goals while maximising tax advantages.
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