Tax Planning with Property Loans: Property Loan Tax Benefits Unveiled

Many borrowers remain unaware of the tax benefits associated with loan against property. It is crucial to understand that while the loan amount can be used for any purpose, the property loan tax benefits are only applicable when the borrower uses the funds for specific activities outlined in the Income Tax Act of 1961. 

What are the different property loan tax benefits in India?

An individual can avail the following list of different property loan tax benefits in India:

• Tax exemption under section 24(B) of the Income Tax Act of 1961

Under this section, salaried individuals who obtain a loan against property can avail  property loan tax benefits. If one uses these loan amounts to finance a new residential house, they can claim tax deductions of up to Rs.2 lakh. The interest payments qualify for tax deductions as well.

• Tax exemption under section 37(1) of the Income Tax Act of 1961

These tax benefits on loan against property apply to borrowers who use the sanctioned loan against property to cover business costs. They can request deductions on the interest portion of the loan, along with the processing and documentation fees, as business expenses when submitting their claim.

• Tax benefits on top-up loans

A top-up loan means getting more credit on top of an existing loan. It lets borrowers borrow more than what they were originally approved. When someone gets a top-up loan on a property loan, it is seen as a personal loan. However, with a loan against property, where the property acts as security, there is no need for extra collateral for a top-up loan.

How to avail property loans?

Below are the simple steps one needs to follow to avail a property loan:

Step 1: Go to the official website of a lending institution.

Step 2: Find the ‘Loan Against Property’ section and select 'Apply Now'.

Step 3: Complete the online application form with accurate personal details.

Step 4: Upload necessary documents such as bank statements, proof of income, address verification, property documents, etc.

Step 5: Select the 'Submit' option.

Once the lender verifies the application and documents, they will approve the loan, and the sanctioned amount will be deposited directly into the borrower's bank account.

Many lenders also offer pre-approved loans to eligible candidates. These offers are attached to loan products like home loans, loans against property, etc. The borrowers must present some details like full name, contact details, and others to check their pre-approved loan eligibility.

Property loan tax benefits offer individuals opportunities to save on taxes while fulfilling their financial needs. By exploring the different tax exemptions and following simple steps to avail them, borrowers can optimise their tax planning strategies and achieve their financial goals efficiently.