How to Get Tax Benefits on Loan Against Property

Applying for a loan requires patience. You must have all the documents. You must fulfil eligibility conditions to get the loan. Mortgaging to get a loan is quite a traditional way. It can be a house, commercial property, gold, or even a vehicle.

A loan against property is one of the finest ways to get a loan quickly. You can mortgage with any financial institution and get funds promptly. The loan against property interest rate is comparatively low. There are various tax benefits linked to it.

In this article, we discuss the basics of loans against property and the tax benefits you can get.

What is a loan against property?

A loan against property is a secured loan. It is available against the mortgage. This mortgage can be your residential or commercial property or even a plot. The ownership of the property needs to be clear. 

The amount of the loan is based on the property value. It is usually 70-75% of the property value. This secured loan is available for both salaried and self-employed. Also, you can use this loan for the following:

• Meet the medical emergencies.
• Fund for education.
• Business expansion.
• Personal expenses. 

Eligibility criteria for loan against property

The following are the eligibility criteria:

• Your age should be between 21 to 70 years.
• You should be a resident Indian.
• You should be salaried or self-employed.
• There should be a property in your name.

Documents for loan against property

The main documents required for the loan against property are:

• Identity Proof like Passport, Driving license, Aadhar card, Voter ID, and Job card issued by NREGA
• Address Proof like Passport, Driving license, Aadhar card, Voter ID, Registered Leave and Lease Agreement
• Utility bills like Telephone Bill /Electricity Bill. (Maximum 3 months old)
• Latest passport-size photograph
• Property documents to be mortgaged

Documents to be added by salaried:

• Last 3 months’ salary slips
• 2 years Form 16.
• 6 months bank statement with salary credit
• Bank statements for the last 6 months 
• 6 months’ salary slips

Documents to be added by self-employed:

• Last 2 years ITR with computation.
• CA audited financials like profit and loss statements, balance sheets, or both.
• 6 months primary bank statement

In case you have a co-applicant:

Some cases might require a mandatory co-applicant. The documents needed are:

• Co-applicant can be a first-blood relative like a parent or child or spouse.
• All the names of co-applicants should be on the loan application.
• If the co-applicant is a child or sibling, he should have attained the age of maturity as per the income-ownership grid. 

Benefits of loan against property

The main benefits of a loan against property are as follows:

• The loan against property interest rate is lower.
• Loan against property offers quick sanction and disbursal.
• It is secured, and you can get a higher amount based on your property value.
• LAP is one with a simpler and straightforward process.
• You need to submit the basic documents only.
• The loan repayment tenure is long. It can be around 15-20 years.
• You will have the property ownership. The title is not transferred to the lender but it restricts you from selling the property in due course. 
• The option for pre-closure is available.
• A loan against property allows you optimum utilisation of your property.
• You can use the fund for multiple uses. 

Tax benefits of loan against property

You are allowed tax benefits if the amount is used to purchase property, repair, or renovate. There are two sections under which you can avail of the tax benefit for a loan against property.

• Tax benefit under Section 24(B)

You will get this benefit if you are salaried. You would be eligible for a deduction of up to INR 2 lakh. This is applicable if you use the loan amount for new residential construction. The deduction is allowed for the interest that you pay on EMI. The deduction is allowed for both paid and payable interest. 

If the total interest value crosses INR 2 lakh, you can carry forward the same for up to 8 years. 

• Tax Benefit under Section 37(1)

You should understand that this section is lined with expenses. This benefit can be used if you have used the loan amount for business needs. The interest paid, processing fees, and documentation fees are allowed for dedication as a business expense.

Conditions for no tax benefit

Section 80C is used for home loans. But the same section is not applicable for the loan against property. You can claim a deduction for interest payment under section 24 (B). But you cannot have any exemption under this section.

Also, the tax benefit is not applicable if you use the fund for any other expenses.

Tax benefits on top-up loans

If you take an additional amount on your existing loan, it is called a top-up loan. You can enjoy the tax benefit on a top-up loan if you use it for purposes linked to house purchase, renovation, or repair. 

The maximum deduction available for this is INR 30,000. You can claim the deduction only when the property is self-occupied. Also, there is no limit for deduction if the property is rented out during repairs and renovations. 

The tax advantages of loans secured by property depend mostly on the principal repayment regarding the use of the funds, even in the case of top-up loans. You can claim the tax deduction under sections 80C and 24(b), respectively if the funds were used to build or buy a new property and not if you use the money for home improvements, renovations, or changes.

Conclusion

Loan against property is one of the safest methods of acquiring funds. It is quick and needs low documentation. Also, you can use the funds for various purposes. 

The tax benefits associated with the loan against property are great. You can avail of them and get a deduction from your overall tax payments. Though some limitations are linked to a tax deduction, the option is still great.

Also, you can visit Piramal Finance to gain all the required information on the loan against property interest rates. You can connect with the experts here and reach an informed decision. Apply for a loan against property in no time.