loan against property

Of the several types of mortgage loans, individuals often prefer to choose a loan against property over others. This is because of minimal eligibility criteria, easy application process, sumptuous loan amount, lower interest rate and extended tenor. LAP also offers several other advantages, which often extend to tax benefits.

A loan against property tax benefit implies tax exemption on the interest paid on a LAP. Individuals can benefit from several laws to reduce the burden of paying hefty interests on LAP. However, there are certain eligibility criteria a loan seeker must fulfil to qualify for LAP tax benefits.

Loan against Property tax benefits

Under the Income Tax Act, 1961, there are two laws which loan seekers can benefit from.

  • Section 37(1)

Entrepreneurs who have applied for LAP to meet their urgent business-related expenses can gain LAP tax benefits from this law.

  • Section 24(B)

Individuals seeking a LAP for purchasing a residential property can benefit from this law.

The rebate is generally on the interest and additional charges of a Loan Against Property and can be upto Rs. 2 lakhs. To stand eligible for the benefit, a borrower needs to know certain prerequisites.

Tips to qualify for a loan against property tax exemption

Below are a few tips by following which an individual can qualify for lap tax benefits:

  • Individuals must be salaried

Employment is necessary if individuals want to enjoy a loan against property tax benefit. They must be employed at a reputed MNC, a public sector company, or even a private limited company. Also, applicants must have a valid employee identity card and other documents confirming their employment at the company mentioned.

  • LAP should be used for residential property only

A loan seeker must invest the entire loan amount to only purchase a residential property. It is also applicable to constructing a property from scratch. The laws strictly mention that if borrowers use the money to cover expenses other than residential purposes, they are disqualified from tax benefits. 

  • Entrepreneurs must use LAP only for business expenses

The law strictly mentions that entrepreneurs can enjoy the loan against property tax benefits only if they use the loan amount for business purposes. Business owners can include documentation charges, processing fees, and interest rates while claiming the exemption. However, investing the money only in business-related expenses is important, not for personal usage.

  • Successfully linking the loan amount with its end-use

Officials evaluating the documents understand that there is a varied range of residential property purchases or business expenses. An individual might list these expenses during claiming the rebate. However, it is imperative to establish a clear connection between the purpose of a loan against property and its usage.

Financial institutions extend pre-approved offers to customers on various products including home loans and loans against property. These offers speed up the loan approval process and makes it simple and hassle-free. Customerts can check their pre-approved offers by enterisn few basic details like name and contact number.

Scenarios when an individual is not eligible for LAP tax benefits

There are several circumstances under which an individual is ineligible to benefit from a tax exemption on LAP. These are as follows:

  • Individuals using the loan amount for personal expenses are ineligible. Personal expenses include planning a vacation, buying a luxury item, financing a wedding, medical expenses, etc.
  • The tax exemption application will be cancelled if borrowers use the money to refurbish an already mortgaged property.
  • If a loan seeker claims the rebate on principle, the rebate will not be granted. This is because the laws are applicable for exemption on the interest only.
  • Individuals are not eligible for tax deduction under section 80(C) of the Internal Revenue Code since it is applicable only for home loans. 
  • If there is no link between the purpose of seeking the loan and the usage of the money, the tax exemption application might get rejected.

What are the benefits of getting a loan against property?

A loan against property tax benefit is a relief to loan seekers paying hefty interests even if the charges are relatively less. The application process of a loan against property is easier and requires less stringent eligibility criteria than unsecured loans.

A loan against property is a type of secured loan and demands a long-term financial commitment from the borrowers’ end. However, most borrowers choose this credit facility as there are multiple benefits of loan against property like the few mentioned below:

  • Flexible usage of the loan amount

A property loan is a type of secured loan where borrowers put their property on mortgage to get credit. One added benefit of LAP is that potential borrowers can use this credit amount for personal expenses and investments. They can use it to meet medical or educational expenses or invest in expanding their business by buying machinery or tools, with no constraints attached to it. 

  • Continued ownership

Applicants for a property loan get the loan against the mortgaged property; however, they still own the property and continue using it in addition to the loaned funds. The ownership of the property does not change, even after it is a collateral offering for the credit. Furthermore, it also gives borrowers the option of selling the property in case they are unable to repay the loan. 

  • Flexible repayment tenor

One key benefit of a LAP is that borrowers can repay it over an extended tenor. However, one must discuss it with their lender, as most lenders offer a repayment tenor that extends up to 20 years. This flexible loan against property tenor is an advantage, especially when repaying a large sum of money. Furthermore, a long tenor along with a low interest rate can be the best and most affordable option for borrowers. 

  • Affordable interest rate

As a LAP is one of the most secure borrowing options, the lender’s risk on giving the loan is a bare minimum. In fact, this is one of the main reasons lenders offer a nominal interest rate against this loan type. In addition, if the property mortgaged is in pristine condition and has good communication and basic amenities nearby, the lender will usually offer an affordable loan against the property interest rate. These factors together minimize the overall cost of the loan. 

  • Tax benefits

As per the income tax department of India, a loan against property or property loan comes with certain tax benefits. Under Section 31 of the Income Tax Act, borrowers can avail of tax benefits on the interest payable amount for a LAP. In addition, Section 24 of the Income Tax Act states that borrowers can get tax benefits of up to Rs. 2 lakhs if they take a property loan to build a new house. Due to this we can understand the whole process of the LAP concept and make sure to get right decision for our loan we are taking.

In addition to the factors mentioned above, a loan against property has very simple eligibility criteria. By meeting criteria like minimum age, a good credit history, and financial stability, both salaried employees and business owners can easily get a loan. Potential borrowers should check the benefits of loan against property across lenders and then choose what suits them best. 

 

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