Loan against property also called a mortgage loan, is used to borrow funds by keeping your already owned property as collateral. Depending on the lender, you can avail of up to 90% of your property’s market value. The benefit here is that you can use the money for any purpose. So unlike other loans, you aren’t restricted to a specific usage.
The LAP is also eligible for tax exemptions. Here are some pointers you must consider about tax deduction on your LAP interest rate.
1 Section 37(1)
Under this section, you can avail of tax benefits for the mortgage loan interest rate and all associated charges. However, the deduction is only applicable if you utilize the amount for business purposes. If you are somehow using it for business, you can claim them as expenses and get the exemption.
2 Section 24 (B)
If you are a regular salaried employee, you can get a tax deduction on your loan against property under Section 24(B). But even in this case, you need to use the loan for buying another residential property to be eligible for the advantages. Under this, you can avail of a deduction of up to 2 lakhs INR. You won’t be eligible for tax benefits when you apply for mortgage loans to transform the collateral property. Plus, you need to know two more factors here:
- The tax benefits are only on the interest paid
- You will have to show a link between your usage and the borrowed amount to avail of the tax deduction
3 No Tax Deduction For Personal Use Funds
If you utilize the loan money for personal purposes like vacation and wedding, you won’t get any tax benefits. For both tax deduction sections, there is a specific use case, and you need to show that the funds are used for that purpose only.
4 You Can Get Tax Exemption For Unpaid Interest
Section 24(B) states that you can claim a tax deduction for the “paid or payable” interest on your loan against property. Therefore, if you apply for mortgage loans, use the money, and miss out on EMIs, you can still avail of the tax benefits.
In this situation, you must keep the relevant documents handy as proof to show the income tax authorities in the future. So, you won’t have to undergo any unwanted trouble.
5 There Is No Benefit On The Principal
None of the Sections or laws includes tax exemption on the principal amount’s repayment for a loan against property. All the benefits are only for the interest that you pay or are supposed to pay in the given time.
These facts show that you need to be very particular about the purpose for which you are borrowing the money. If you don’t fall under the specified criteria, you won’t be able to avail of any tax benefits on your mortgage loan interest. Plus, you must read all the details of Section 37(1) and Section 24(B) to avoid any last-minute problems.