Maximize Mortgage Loan Tax Benefits for Property or Business Use

Tax Benefits on Mortgage Loans: What You Need to Know

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Tax Benefits on Mortgage Loans: What You Need to Know

3 min 21 Apr 2025

Highlights:

What Is a Mortgage Loan?
Can I Get Tax Benefit on a Mortgage Loan?
Mortgage Loan Tax Benefits Under the Income Tax Act
Documents Required to Claim Deductions
How to Avail Tax Benefits on a Mortgage Loan?
Things to Keep in Mind

When it comes to managing large-scale business expenses, a mortgage loan — or Loan Against Property (LAP) — offers easy access to substantial funding. Along with this financial flexibility, borrowers can also make the most of available income tax benefits on mortgage loans, depending on how the funds are used.

Here is a closer look at the tax deductions you can claim on a mortgage loan, the conditions that apply, and how to ensure maximum benefit.

What Is a Mortgage Loan?

A mortgage loan, commonly referred to as a Loan Against Property, is where you pledge a self-owned residential or commercial property to secure funds. The property remains in your possession, and you can continue to use it. These loans are typically used for a range of purposes — expanding a business, home remodelling, or even consolidating debts.

Can I Get Tax Benefit on a Mortgage Loan?

You can claim deductions under certain sections of the Income Tax Act, 1961, depending on the purpose of the loan.

Mortgage Loan Tax Benefits Under the Income Tax Act

The Income Tax Act, 1961, offers several provisions to claim mortgage loan tax benefits, mostly under two sections — Section 24(b) and Section 37(1). Here is how these apply:

1. Section 24(b): For Home Purchase or Construction

If you use the funds from your mortgage loan to purchase or construct a new residential property, you can claim a deduction of up to Rs.2 Lakh on the interest paid in a financial year under Section 24(b).

To be eligible:

The property must be purchased or constructed using a Loan Against Property
You must be able to show clear proof of fund usage (bank transfers, purchase agreements, etc.)
The construction or purchase should be completed within five years from the end of the financial year in which the loan was taken

It is important to note that this benefit is only on the interest component of the loan, not the principal.

2. Section 37(1): For Business Use

If the mortgage loan is used for business purposes, such as purchasing equipment, covering operational costs or expanding facilities, the interest paid can be claimed as a business expense under Section 37(1).

This benefit has no monetary cap — the full interest amount is deductible, provided the usage is strictly for business and can be substantiated with invoices, contracts or account statements.

Do note that these deductions are available only to business owners, professionals and self-employed individuals who file returns under the income from the business or profession head.

Documents Required to Claim Deductions

If you are planning to claim tax benefits on a mortgage loan, be prepared with the following documents:

Sanction letter from the lender
Loan repayment statement showing interest outflow
Proof of end-use (invoices, payment receipts, bank statements, agreements)
CA certificate, in some cases, for business-related expenses
PAN and property ownership documents

Maintaining transparency and keeping a clear trail of transactions is important — especially if your claim is picked up for review.

How to Avail Tax Benefits on a Mortgage Loan?

To avail of tax benefits on a mortgage loan:

Confirm the eligibility of your loan’s purpose.
Keep your documents and proofs organised.
Consult a tax advisor, especially for business-related claims.
While filing your returns, mention the deduction under the appropriate section.

Also, remember that these benefits apply only to the interest component.

Things to Keep in Mind

While you can claim mortgage loan tax benefits, keep the following things in mind:

Deductions are applicable only on interest paid, not the principal
Usage must be clearly documented and verifiable
Tax claims must match with the purpose declared at the time of loan application
You cannot claim deductions under multiple heads for the same expense

A mortgage loan can help you reduce your overall tax obligation, provided it is used for purchasing or constructing a property or expanding your business.

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