A loan against property is one of the best financing tools available today to fund necessary expenses via a property mortgage. Loan against property is a vital credit product for numerous individuals who require an easy access to substantial funds by leveraging their property value.
The Government of India offers tax exemptions to borrowers of Loan against property however under a few specific conditions. To benefit from them, you must have a thorough understanding of the terms of a loan against property and how you can avail tax exemptions.
Tax Benefits Available On Loan Against Property
Both salaried and self-employed individuals can avail a loan against property tax benefits by mortgaging residential or commercial properties. Now, the tax benefits for each of the borrower types differ.
Note that these loans do not have any end-use restriction. However, you can only avail tax exemptions on them if you utilise the funds for the purchase/construction of a residential property. You can even avail tax exemptions for home renovation as well.
Let’s understand how self-employed and salaried applicants can save on taxes with a Loan against property.
- Tax Exemptions For Business
You gain tax benefits when you avail a loan against property in India if you use the sanctioned sum for business expansion. You can expand your business operations, invest in new infrastructure, or purchase equipment to aid in your business with the sanctioned loan. You are eligible for tax benefits when you present proof that you have utilised the sanctioned amount for such business-related purposes.
Under Section 37(1) of the Income Tax Act, your taxable income will be reduced by the amount of interest you pay, plus all other incidental costs such as processing fee and documentation charges.
You can utilise a loan against property EMI calculator to calculate your monthly obligations. Additionally, use the amortisation sheet to know the interest and principal component you will pay throughout the year. Know how much tax exemptions you can avail in a year accurately.
- Tax Benefits For Salaried Individuals
Salaried individuals employed at any registered enterprise can avail tax exemptions via a loan against property. Borrowers in this category can gain tax exemptions if they use the funds for the purchase/construction of a residential property.
Section 24(b) of the Income Tax Act allows the reduction of taxable income of a borrower on Loan against property. The borrower’s taxable income will be reduced by the interest he/she pays for loan repayment.
Similarly, Section 80C enables borrowers to avail tax benefits on the loan against property principal. The maximum deduction under this section that one can claim is Rs. 1.5 Lakh per year on the total interest paid.
You can quickly figure out how much interest you pay as a part of your EMI with a loan against property EMI calculator. Several NBFCs features this tool on their website. By choosing the right lender, you can also enjoy a host of benefits on your loan terms. Features like flexible tenors, high LTV ratios, and interest on only the withdrawn amount should be prioritised.
Tips To Follow
There are several methods with which you can increase your loan against property eligibility and utilise the funds to its maximum.
- Pre-pay All Existing Loans
Existing loans may lead the lender to think that the borrower is already burdened, so the chances of delayed EMI payments are high. Lenders will reduce the sanctioned amount or will charge higher interest rates.
- Include A Co-applicant
Co-applicants can be siblings, parents, spouse or any other family members with an income source. It increases the repayment capacity on the borrower’s side so the lender will offer better interest rates. Co-applicants can help avail a larger loan amount. It is also one of the best ways how not to default your loan against property.
- Maintain A Decent Credit Score
A CIBIL score of around 750 is considered worthy to avail financial products. Lenders such as Bajaj Finserv provide multiple repayment-friendly terms to borrowers with such CIBIL scores including attractive interest rates and zero charge part pre-payment or foreclosure. You can also apply for low cibil loan if you meet the eligibility requirements.
Bajaj Finserv also brings you pre-approved offers on such secured
loans as well as on home loans, on unsecured loans such as personal loans and
business loans, and on varied other financial products. Pre-approved offers
reduce the time required to avail such finances by making the process simple.
Also, make sure you accurately provide theloan against property documents required such as sales deed, utility bills,
property ownership history, blueprints, etc. Avail a loan against property and
enjoy tax benefits when you utilise the funds for your house easily.