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How To Get Income Tax Benefits On Loan Against Property

A loan against property is a secured funding option that is sanctioned against pledged assets. This credit option allows availing up to 70% of the property’s value as the loan amount. Apart from numerous benefits, including no end-use restrictions, low interest rates, etc., note that when applying for a loan against property, you are eligible to claim mortgage loan tax benefits under the Income Tax Act, 1961.

Gaining an insight into the applicable tax benefit for loan against property is useful to maximise savings. It can help determine whether the mortgage loan is eligible for income tax exemption or not and, if so, under which Sections.

Tax Benefits on Loan Against Property

The loan against property income tax benefits is elucidated in a tabular format –

Tax Provision Income tax benefit for loan against property
Tax exemption under 37(1) Claim tax benefits on the interest paid, alongside associated charges and fees, if the amount availed is utilised for business purposes.
Tax exemption under 24(b) Claim tax benefits on interest paid if the loan was availed to buy a house. Borrowers can claim up to Rs.2 lakh as a deduction under this section.
Tax exemption under 80C This section does not offer any income tax benefit on loan against property.

 

Note that there is no mortgage loan income tax exemption if the sanctioned loan amount was used for personal purpose. Such purposes include – sponsoring higher education, planning a wedding or travel, paying medical expenses, etc.

Furthermore, there are no applicable tax benefits if a residential property was mortgaged to raise funds. Make sure to find out about the applicable home mortgage loan tax benefit in India and accompanying exclusions in details to claim them accordingly.

How to Calculate Loan Against Property Tax Benefits?

After gauging is loan against property taxable or not, proceed to calculate the overall tax burden. Following that, computing the loan against property tax rebate would become much easier.

Use an online income tax calculator to determine your tax liability. Follow these steps to use the online calculator –

Step 1 - Choose the fiscal year for which you want to compute income tax liability.

Step 2 – Select the applicable age group.

Step 3 – Click on the ‘Go to Next Step’ button.

Step 4 – Enter salary with or without accounting for the applicable deductions.

Step 5 – Enter interest income, income from rent, interest on loan against property deduction, etc.

Step 6 – Click on the ‘Go to Next Step’ button.

Step 7 – If you wish to calculate taxes under the old IT slab, enter details of tax-saving instruments under Section 37(1), 24(b).

Step 8 – Click ‘Calculate’ to obtain tax liability details.[c1] 

To find if interest on a mortgage loan tax deductible or not, use the loan against property tax calculator and gain a better insight into required details.

Process to Avail Loan Against Property Tax Benefits

The easiest way to avail tax deduction loan against property is to claim the same while filing annual income tax returns. However, to eliminate the chance of missing out on any mortgage loan tax benefits, make sure to find out the provisions, terms and exclusions in detail. This will help to account for the applicable exemptions and facilitate more savings on the loan burden.