Certain income tax advantages are available when you mortgage your home in return for a loan. Historically, getting a loan has involved pledging your residential or commercial property. When you cannot obtain a personal loan, a credit card loan or any other specialised loan to finance a particular purpose, a loan against property may be a viable choice.
A rented, owner-occupied, or owned property makes it simple to qualify for an alternate loan product. Banks offer loans secured by real estate these days, but you must first mortgage the property to be eligible for a loan. The loan amount will depend on the current valuation of the property. The best course of action would be to use the property as security with the right bank instead of handing over ownership.
Lenders accept secured loans (also called mortgage loans) because they retain control of your property if you do not repay the loan in full.
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Additionally, you become qualified for tax advantages for loans against property. Below are a few of them:
Tax Benefit under Section 37 (1):
Contrary to popular belief, this section of the Income Tax Act only applies to expenses, not income. So long as they aren’t capital or personal expenses, any costs associated with your business operations can be included in your income statement.
It doesn’t matter if a loan was taken out for company or personal purposes; loans secured by property are not tax deductible. Mortgages may not be taxable as they are borrowed to invest in real estate. When business entities buy commercial assets, the same is (to a certain extent) true. On the other hand, a secured real estate loan means you get a loan using your home as collateral. Therefore, this amount cannot be deducted from income.
Tax Benefits under Section 24(B):
Under this provision, any employer who applies for a loan can obtain a loan for property tax benefits. It states that a tax credit of up to Rs 2 lakh can be claimed under certain conditions if the funds borrowed from the financing company are used for residential property. This application can be used for acquisition, construction, repair, renovation, or reconstruction.
No Exemption under Section 80C:
With Section 80C if mortgage loans are used for things other than housing, like education, marriage, travel, medical emergencies, or other things, they are not tax deductible under Section 80C of the Internal Revenue Code. This is unfortunate because the most typical instance in which this section is employed is obtaining a home loan, which is intended to cover housing-related costs.
Tax Benefits on Top-up Loans:
When you need more money than what is left on your existing housing loan, you take out a top-up loan. A top-up mortgage loan against property is regarded as a personal loan. All collateral will be required only what you already provided to obtain the mortgage.
Top-up loan tax benefits are subject to different regulations than mortgage loan tax advantages. Among them are:
- The maximum tax deduction for interest paid on home loans under Section 24(B) is 2 lakh rupees, but for top-up loans, it is limited to 30,000 rupees and only for properties used for self-occupied residential purposes.
- The additional loan funds may only be used to build or renovate the housing unit.
- If the total interest payment on your home loan and top-up loan exceeds INR 2 lakh, you can carry the excess forward and deduct it for up to 8 years.
Conclusion:
Many tax benefits are attached to the terms and conditions of a loan secured by the property. As a result, it’s crucial to visit a finance service provider like Finway FSC, which aids in loan applications, if you’re considering taking out a mortgage loan against property.
