How To Avail Tax Benefits On Your Loan Against Property?

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04 JUNE, 2021

A loan against property is a secured loan where you can borrow money against your property. During a financial crunch, a loan against property can help you fulfil your financial obligations. It is a lucrative and flexible option when compared to selling off your house. Moreover, a loan against property can also help you avail tax benefits. However, there are some conditions, which you need to fulfil to avail the tax benefits, like the requisite usage of the loan amount. Read further to know more.

Tax Benefits on Loan Against Property

Below are the two sections of the Income Tax Act, 1961, that enable tax benefits with a loan against property:

Tax benefits under Section 24(B)
Interest paid for loan against property up to Rs 2 lakh can be claimed as a deduction under Section 24(B) of the Income Tax Act if you use the borrowed funds towards your new residential home.
The funds received from the loan against property cannot be used for other personal reasons if you want to claim the home loan tax benefits. Thus, under Section 24(B), the end-usage of the loan amount holds importance for claiming deductions.

Tax benefits under Section 37(1)
If the funds from the loan against property are used for business purposes, then you can claim tax benefits under Section 37(1) of the Income Tax Act. The interest paid on the loan amount and other charges such as processing fees, documentation cost, etc. that you incur as business expense can be claimed for tax deductions.

Ineligible Tax Deductions That You Cannot Claim

Here are some scenarios under which you cannot claim home loan tax benefits:

Section 80C
You cannot claim deductions under Section 80C of the Income Tax Act, 1961 for a loan against property. Such a benefit is available for home loans only. So, if you have an ongoing home loan, then you can claim deductions for it but a loan against property isn’t eligible for deductions under Section 80C.
Personal purposes
If you use the borrowed funds for personal purposes, then you cannot claim deductions under Section 24(B) or Section 37(1) of the Income Tax Act. Using the loan amount towards travel expenses, marriage, child’s education, paying off medical bills, etc. doesn’t make it eligible for tax benefits.
Remodelling your property
The funds from a loan against property cannot be spent for remodelling your mortgaged property. If you use the funds from your loan for house remodelling, or renovation, you would not be able to avail any tax benefits on it.

Mention how exemptions cannot be claimed if the sum is utilized for personal expenses
Cannot claim if mortgaging residential properties for a loan against property
Residential property
Tax benefits are not available on loan against property if the loan has been taken against a residential property.

In a nutshell, you can avail tax benefits with a loan against property only in a couple of restricted use cases mentioned above. If you are looking for a loan against property, explore the friendly offerings from Kotak Mahindra Bank. Getting a flexible loan against property with Kotak Mahindra Bank can be a seamless and hassle-free experience with simplified eligibility criteria and online process. Apply for a loan against property today!

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

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