How to get tax benefits on loan against property

The government offers tax rebates for different loans to boost the economic activity in the housing sector. A salaried employee might find most loans a considerable burden to repay. Under Section 24 (b) and section 37 (1) of the Income-tax Act, you can avail of several tax benefits.

Section 24b:

This section is referred to as the Interest tax shield on home loans. A salaried employee who has a loan against property can avail of a tax benefit under this section. If you use the money to fund a new residential house, you are eligible for tax deductions of up to ₹ two lakhs. This deduction is only applicable to the interest the borrower has to pay.

The borrowing eligible for tax benefits under section 24 b need not be only from a bank or a financial institution. The money can also be borrowed from friends and relatives to qualify for a tax deduction.

If a borrower has paid interest before completion of the construction of the property, that amount paid can be deducted. It can be deducted in five equal instalments spread over five successive years. This deduction will start immediately after the borrower completes the construction of the house. If the loan is taken for the construction of the house, that should be completed within three years. To claim deductions under this section, you must produce a certificate from a bank or lender with details of the interest paid.

Maximum deduction limit under 24b

If a loan against property is taken before 1 April 1999 for buying, constructing, renewing, repairing or repairing or reconstruction of a house, the maximum deduction allowed is ₹ 30,000

If a loan against property is availed after 1 April 1999 for buying or constructing a house property within three years of borrowing the loan, the maximum tax deduction allowed is ₹1.5 lakhs.

If you took a loan against property after 1 April 1999 for renewing, repairing or reconstructing a house, then the maximum deduction allowed is ₹30,000

If a loan against property is taken to let out or property deemed to be let out, then the maximum tax-deductible is ₹2,00,000.

If your loan against property is taken for a property that is let out, then the entire interest amount payable in that year is deductible.

Additional Read: Questions About Loan Against Property Answered

Section 37 (1):

A borrower can claim tax exemption under section 37 (1) if the loan amount is used for business purposes. When you take a loan against property for business purposes, you can avail of tax benefits on the interest charged, processing fees as well as documentation fees. The section states that expenditure incurred wholly and exclusively for business will be allowed as a deduction. This section also will enable deductions on the interest paid and not on the principal.

Additional Read: Need a Loan? Here's all You Will Require for a Quick and Easy Loan Application Process

Conclusion:

While purchasing a loan against property can be intimidating for any borrower, such tax benefits offered by the government offer some relief. The borrower can avail of certain deductions on the interest paid on such loans, which will help in the borrower’s total savings. This amount can be used for future investments to protect the interest of the borrower.

Disclaimer

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. Please note, loans related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

ICICI Securities Ltd. acts as a referral agent to ICICI Bank Ltd. for loan against property related services & the loan facility is subjective to fulfilment of eligibility criteria, terms and conditions etc.