Loan Against Property

How can you Claim Tax Benefit on Loan Against Property?

A loan against property is provided based on the value of the property being promised as collateral. As it is a secured loan, you will enjoy a lower interest rate compared to a personal loan. That is not all; you can also get several tax benefits.

Loan against property tax benefits are listed below:

  1. If you have taken a loan against property for a business purpose, you can claim an exemption on interest paid and any other related fees. To do this, you will have to claim the interest and other fees as a business expense under Section 37(1) of the Income Tax Act.
  2. Suppose you have used the borrowed funds for purchase another residential property. You can claim a deduction for the interest paid under Section 24(B) of the Income Tax Act. The maximum deduction allowed under this section is ₹2 lakh. You will have to establish that the borrowed funds were indeed used to fund the purchase of a residential property to claim a deduction under Section 24(B).
  3. If you have used the property where you currently reside as collateral for a loan against property, you cannot claim any tax benefits.
  4. It is important to remember that unlike home loans, repayment of either principal or interest thereof for a loan against property is not eligible for deduction under Section 80C of the Income Tax Act.
  5. Tax benefits on loan against property cannot be claimed if the loan amount is used to transform the property that is mortgaged.
  6. Remember that only the interest paid on loan against property can be claimed as a deduction, and not the principal repaid.
  7. If the borrowed uses the loan amount for personal expenses like funding a marriage or education of a child, then, the loan against property tax benefits under Section 24(B) and Section 37(1) cannot be claimed.

One of the most important steps to get your claims is to ensure you have all the loan against property documents required by the lender ready and submitted. Here is a list of the documents:

  1. Application form with a recent photograph
  2. Proof of Identity; could be one among:
  1. Passport
  2. Voter ID card
  3. Driving License
  4. PAN Card
  1. Proof of Address; could be one among:
  1. Ration card
  2. Telephone Bill
  3. Electricity Bill
  4. Rental agreement
  5. Passport copy
  6. Bank Passbook or Statement
  7. Driving License
  1. Proof of Date of Birth; could be one among
  1. PAN Card
  2. Passport
  3. any other certificate from a statutory authority
  1. Last six months’ salary slip
  2. Last six months’ salary account statement
  3. Form 16
  4. Income Tax Returns for the last three years
  5. Processing fee cheque
  6. Title deed, approved plan and other documents about the property offered as collateral

Loan against property is a great choice, especially if you are looking to fund a large expense. The loan attracts a lower interest rate compared to a personal loan but also is provides substantial tax savings.

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