Mortgaging residential or commercial property has been a common practice to obtain a sizable fund in times of financial setbacks. A loan against property is a credit facility that allows a candidate to get a sizable amount by pledging their immovable asset as collateral.
One can get up to 70% of the property’s current market rate as loan amount. Further, candidates who opt for this credit instrument are eligible for loan against property tax benefits under certain circumstances.
Keep reading to know more about the tax savings benefits on a loan against property.
What are the tax-saving benefits of a LAP?
Some of the applicable tax exemptions that an individual can avail from a loan against property are as follows:
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Tax deduction under Section 37(1)
Borrowers can claim tax exemptions on the processing fees, documentation charges and the interest paid for LAP under section 37(1) of the Income Tax Act of 1961. However, in this case, the loan amount must be utilised for business purposes and not for any capital growth or other expenses of a personal nature.
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Tax deductions under Section 24(B)
Salaried borrowers can avail tax benefits on the interest paid for a loan against property under Section 24(B). Nevertheless, the borrowed amount must be utilized to purchase new residential property.
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Accordingly, a candidate can claim a maximum amount of Rs.2 lakh in the form of tax deductions, if they provide valid proof of the end-to-end usage of the borrowed amount.
Circumstances under which an individual cannot claim tax benefits
- A borrower cannot avail tax benefits on LAP in case he/she uses the sanctioned amount to fund personal expenses, such as medical emergencies, marriage, education, etc.
- Furthermore, a candidate cannot enjoy the tax exemptions on a loan against property under Section 80C of the Income Tax Act.
Ways to obtain reduced interest rates on loans against property
Knowing the tax exemptions are important to maximize savings; however, existing or new borrowers should also know the other ways to reduce the interest on loan against property.
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Choosing the repayment tenor wisely
A longer repayment tenor means affordable monthly installments. However, when choosing a long repayment tenor, the total payable interest also increases accordingly. Choosing a proper repayment tenor is necessary for borrowers in order to manage their monthly expenses and their long-term financial goals.
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Comparing lending institutions and the associated additional charges
One should invest a considerable amount of time and research to compare the lending institutions in the market. Willing borrowers should check essential parameters, such as processing fees, interest rates, repayment tenor, etc. Further, they should also ensure to communicate with the lending institutions to know about the terms and conditions associated with the credit facility and make an informed decision accordingly.
Further, prospective borrowers should also check the loan disbursal time before opting for a loan against property.
How to apply for a loan against property?
One can follow these simple steps to opt for a LAP in India:
Step 1: Visit the official website of the preferred bank or NBFC for a loan against property.
Step 2: Fill up the application form and provide all the personal and income-related details, as asked by the lender. This shows the best loan offers as per eligibility.
Step 3: After the successful submission of the application form, a representative from the lending partner will contact the applicant to verify the loan against property documents.
Once all the steps are successfully completed, the lender will sanction the loan within the shortest turnaround time.
That being said, willing borrowers should also check the pre-approved offers extended by the different lending institutions in India. These exclusive offers streamline the entire loan application procedure and helps in fast disbursal of the loan amount.
To sum it up, both old and new borrowers should know about the loan against property tax benefits. This will help them to determine their savings and manage their finances in a better manner. Further, new borrowers should avoid taking more funds that they actually require to keep their mortgaged property safe throughout the whole repayment tenor.
