Tax Benefits on Loan Against Property

A loan against property is an ideal financing solution to manage high expenses. With your property pledged as collateral, you can borrow a specific amount depending on the value of your property. 

 

While this credit facility has no end-use restrictions, are you aware of its tax benefits? Read on to know more about its tax benefits. 

1. Tax Benefit Under Section 37(1) for LAP

Section 37(1) of the Income Tax Act, 1961, does not permit you to claim tax deductions for repaying your Loan Against Property directly. You can only enjoy tax benefits on loan against property payments if you satisfy the certain criteria, which are:

• 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

2. Tax Benefit for Loan Against Property Under Section 24(b)

You can enjoy income tax benefits on loans against property under Section 24(b) of the Income Tax Act of 1961. However, you can avail of these conditions only if you are a salaried person and are using the sanction to buy a new house. 

 

This section allows you to enjoy tax benefits on the interest on a loan against property of up to ₹2 Lakhs. When filing ITR, you will need to provide proper documentation to establish that the borrowed sum has been used to purchase a house. 

 

Note that you cannot claim tax benefits for a loan against property under Section 24(b) if you are using the sanction to: 

• Renovate or upgrade the mortgaged property 

• For any other personal expense other than purchasing a residential property

3. No Tax Exemption Under Section 80C for LAP Borrowers

The tax deductions under Section 80C of the Income Tax Act can only be claimed for home loan repayments. This implies that you cannot claim income tax benefits on loans against property under any circumstances.

4. When Can You Claim Tax Benefits on Loan Against Property?

With a loan against property, income tax benefits are only available if the following conditions are fulfilled:

• If you use the borrowed sum to meet your business expenses under Section 37(1)

• If you use the sanction to purchase a residential property

   

Moreover, you will not be eligible to claim any tax benefit for a loan against property if:

• You use the borrowed sum for other personal expenses like to cover the cost of medical, educational, wedding, or travel expenses

• You use the loan amount to upgrade or renovate a mortgaged property