Section 37(1) of the Income Tax Act, 1961, does not allow you to claim tax deductions for repaying your Loan Against Property directly. You can only claim deductions under this section if you satisfy the below-mentioned criteria:
That expense should not be covered under Sections 30-36 of the same, such as the cost of advertisement
The expense incurred must not be of a capital nature
The expenses must have been incurred in the previous financial year
The expenses incurred must be wholly for business and professional purposes
You can claim a tax deduction under this particular section if you are a salaried person and are using the LAP money to buy a new house. Under this particular section, you can claim a deduction of up to ₹2 Lakhs for the interest component of the same. But, you must remember that you will need to establish a link between the two. You should also remember that you cannot claim tax benefits under Section 24(b) if you are using the LAP money to renovate the mortgaged property or for any other personal expense.
You must remember that tax deductions under Section 80C of the Income Tax Act can only be claimed for home loan repayments. This implies that you cannot claim tax benefits under this section for repaying your LAP money under any circumstances.
Unless you are a salaried individual who is using the mortgage money to buy a new residential home, the mortgage loan will not be tax free for you. If you have used the mortgage money to buy a new home, you can claim deductions of up to ₹2 Lakhs every year under the Income Tax Act of 1961 for the interest component of the same. But, you must prove that a part or all of the money received as LAP is being used to purchase a home to claim the deduction.
Some of the benefits of a loan against property that you must know about are:
It is a secured loan that you can take to cover large expenses
Given that it is a secured loan, the interest rates applicable to your Loan Against Property are generally lower
You can repay the LAP amount over the time span of 20 years. But, you must note that your maximum repayment tenure will depend on your LAP amount and your credit profile.