Introduction
A loan against property (LAP) is a secured loan that individuals can avail by mortgaging their property. Not only does a LAP help in meeting significant financial requirements, but it also offers certain tax benefits. Let’s delve into understanding these benefits and how you can claim them.
What is a Loan Against Property?
A LAP is a loan granted by lenders against the mortgage of one’s property. The property can be commercial or residential and is held as security by the lender until the loan is repaid in full.
How Does a Loan Against Property Work?
In a LAP, the borrower pledges their property to the lender. The loan amount is determined by the property’s market value. In the event of a default, the lender has the right to sell the property to recover the loan amount.
The Tax Benefits of a Loan Against Property
Section 24(B) of the Income Tax Act, 1961
Under Section 24(B), if the LAP is taken for purchasing, constructing, or renovating a house, the borrower can claim a deduction for interest repayment up to INR 2 lakhs in a financial year.
Section 37(1) of the Income Tax Act, 1961
If the LAP is availed for business purposes, the interest paid on the loan can be claimed as a business expense under Section 37(1). There’s no upper limit for this deduction.
Eligibility Criteria for Tax Benefits
To claim these tax benefits, you need to meet specific criteria: For Section 24(B), the tax benefit is only applicable if the loan is taken for a residential property. For Section 37(1), the loan must be used for business purposes.
Documentation Requirements
To claim the tax deduction, you need to have the following documents: Proof of property ownership Loan certificate from the lender showing the principal and interest amount Proof of construction or renovation, if applicable
How to Claim Tax Benefits on a Loan Against Property
Tax benefits can be claimed at the time of filing your Income Tax Return. The interest portion of the loan repayment is included in the deductions section of the ITR form.
FAQs about Tax Benefits on Loan Against Property
1. Can I claim tax benefits if the LAP is taken against commercial property?
Yes, if the loan is used for business purposes, you can claim tax benefits under Section 37(1).
2. Are there any limits on the loan amount for claiming tax benefits?
The limits apply to the amount of interest that can be claimed as a deduction, not the loan amount.
Key Takeaways
A LAP can offer significant tax benefits under Sections 24(B) and 37(1) of the Income Tax Act, depending on how the loan amount is utilized. Proper documentation is crucial to claim these benefits.
If you are looking for a sizable loan and want to benefit from tax savings, a LAP could be your answer. Contact your financial advisor or lending institution to understand the process and get started with your loan application.
