Tax benefit opportunities in loan against property you must know

A loan against property (LAP) or a mortgage loan is a cost-effective borrowing option where you pledge your property as an asset to acquire funds. However, can a loan against property give tax benefits as well?

Unlike housing and education loans, tax benefits on loans against property are not directly available. However, you can enjoy mortgage loan tax benefits, provided you use the borrowed amount in certain specified ways. Let us explore what the tax relaxations on mortgage loans are and how you can leverage them for maximum benefits. 

Potential tax benefits of a loan against property
 

To maximise loan against property tax benefits, you can utilise the loan amount for one or more of these purposes – 

• Business purposes –

Section 37(1) of the Income Tax Act says that the interest paid on a loan taken for business purposes is eligible for deduction. As a permissible expense, it reduces the business's net profit, resulting in tax savings on loans. The loan, however, must not be used for the business's capital expenditure.

Apart from loan against property interest rates, expenses incurred to raise the loan are also eligible as a business expense. This includes registration, stamp duties, and processing and documentation charges for raising the loan. 

• House property –

Under Section 24(B) of the Income Tax Act, tax benefits on a loan against property can be claimed when an individual uses the loan to construct, purchase, renovate, or repair a house. This includes –

- For self-occupied house property, interest of up to ₹2 lakhs per annum can be deducted from the annual income

- For a house that is not self-occupied, the entire interest paid during the financial year is allowed as a deduction

- Further, loans against property tax benefits are in store for purchasing an affordable housing property under Section 80EEA. An additional deduction of ₹1.5 lakhs is available on the interest portion of the loan repayment amount.

While home loan principal repayment is allowed as a deduction under Section 80C of the Income Tax Act, it is not available as a property loan tax benefit.

IDFC FIRST Bank’s loans against property 
 

With IDFC FIRST Bank, you can buy a plot or a commercial property or borrow a loan against your rental income, using a loan against property. IDFC FIRST Bank’s loan against property is available for all properties, be it residential, commercial, or business properties like hotels and godowns. Thus, with these loans, you have a better chance of optimising tax savings.

Once you get your IDFC FIRST Bank loan against property, tax benefits can be explored through business or house property utilisation. Apart from the tax savings, you also get benefits like –

• Loan of up to 80% of property value
• Flexible loan tenure of up to 25 years
• Dropline overdraft facility where interest is charged on utilised amount only
• Option to transfer your existing loan with top-up facility, at attractive interest rates
• Funding solutions for educational institutes, hospitals, and restaurants
• Quick funding based on business bank statement or GST returns

The bottom line
 

While a loan against property does not offer blanket tax benefits like home or education loans, strategic usage, such as for business or housing purposes, can help you claim substantial deductions under the Income Tax Act. IDFC FIRST Bank’s LAP solutions enhance this further with high-value loans, attractive LAP interest rates, and versatile funding options.

Unlock the hidden potential of your property today and maximise the tax benefits from a loan against property through its astute use. Learn more about IDFC FIRST Bank’s loans against property.