Leveraging Property Loan Tax Benefits: A Financial Advantage

Loans against property are loans backed by collateral. Individuals who own residential or commercial property can avail of a loan against it by pledging it as security. Some lenders also offer loans against land. Once a borrower pledges the property as security, their lender places a lien on it, which gets removed after the borrower repays the entire loan amount along with interest. Once this lien is removed, the lender loses all rights over the property and the pledged collateral goes back in the name of the loan borrower. 

Loans against property offer several benefits. To start with, since these loans are backed by collateral, property loans attract a nominal rate of interest. Property loan interest rates start from 8.40% per annum. Further, these loans come with a long repayment period. Borrowers have the flexibility to choose to repay their loans over a period extending up to 18 years. This long repayment tenor eases the burden of loan repayment by allowing borrowers to repay their loan through comfortable and easy-to-pay home loan EMIs. 

Property loans also come with several property loan tax benefits. Here, we discuss these tax benefits in detail. 

Property Loan Tax Benefits on Home Purchases 

If you avail yourself of a property loan and use the loan to help you buy another property, you can claim property loan tax benefits under Section 24b of the Income Tax Act. In other words, in this case, you are eligible to claim property loan tax benefits up to Rs. 2 Lakh on payments made towards the repayment of the interest component of your loan against property. However, property loan borrowers must keep in mind that they cannot claim any tax benefit on the principal component of their loan against property. In other words, property loan tax benefits do not make you eligible to make any claims under Section 80C of the Income Tax Act. 

Property Loan Tax Benefits on Business Expenses 

One of the biggest benefits of property loans is that these loans come with zero end-use restrictions. Thus, borrowers can use the loan money to put a child through college, pay for their wedding, buy another property or even start another business. 

If you use the loan money to start another business, you can claim tax benefits on your property loan under Section 37(1) of the Income Section Act. One can claim these tax benefits only on the expenses incurred towards running the business and you can claim these tax benefits only if you can provide all the bills that prove that the money was spent on covering expenses related to the business. Borrowers can also claim the payments made towards covering processing fees as a business expense and claim tax benefits on it. 

Conclusion

In short, with a loan against property come several tax benefits and with the help of these tax benefits, you can reduce your tax liability by a significant margin. So, if you are repaying a property loan, talk to a tax expert and request them to help you regarding how you can maximize your tax benefit through a property loan.