Is Loan Against Property Taxable?

Tax exemption on loan against property is a secured loan where you use your property as collateral to borrow funds from a lender. Understanding the tax implications of a loan against property is crucial for effective financial planning. Read on to know more.

Is Loan Against Property Eligible For Tax Exemption?

The loan amount received from a loan against property is not considered income and hence is not taxable. It is a liability that needs to be repaid to the lender over a period of time with interest.

• If the loan is used for personal expenses like weddings, education, or medical emergencies, there are generally no tax benefits associated with the interest paid.

• If the loan amount is used for business purposes, the interest paid on the loan can be claimed as a business expense, thereby reducing the taxable business income.

• If the loan is used to purchase another property or for the construction of a house, the interest paid on the loan might be eligible for deduction under Section 24(b) of the Income Tax Act, similar to a home loan, subject to certain conditions.

• For individuals using the loan amount for business purposes, the interest paid can be claimed as a deductible expense under the heading "profits and gains of business or profession."

This is the basic point you must know regarding the loan against property income tax benefit.

Moreover, self-employed individuals and professionals can also claim the interest paid as an expense if the loan amount is used for business or professional purposes. When the loan is used for personal reasons, such as a vacation or household expenses, the interest is not eligible for any tax deduction.

If you sell the property that is mortgaged, any capital gains tax liability will arise based on the sale proceeds, cost of acquisition, and improvement costs as per income tax laws. Using sale proceeds to repay the loan does not affect the calculation of capital gains tax.

This is all about tax exemption on loan against property.

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In order to secure finances in times of need, people like us have been mortgaging property for years, whether it be commercial or residential. I have always felt that taking a loan against our property is better than selling it and relinquishing ownership. Additionally, the lender has ensured repayment when we take out a loan secured by the property. As a result, we will receive quicker loan approvals and better credit terms! Although a loan against property involves taxes, there are benefits and exemptions too. I will tell you all about loan against property tax exemption.

Is loan against property taxable?

Yes, a loan against property is taxable but there are many tax benefits that can be claimed out of it. The tax advantages of loans secured by real estate are yet another advantage. These tax advantages, however, hinge on how you intend to spend the loan amount.

Due to its attractive interest rates and significantly lower borrowing costs, many borrowers favour it over a personal loan. According to your eligibility and needs, a Loan Against Property is a secured mortgage loan that enables you to mortgage your property and apply for a loan of Rs. 5 Crore* or more.

The main advantage of a loan against property is that there are no constraints on its final use, which makes it ideal for costs not covered by a home loan, including the price of an international education, a wedding, or business expansion.

The tax advantages of loans against property are another thing to take into account. Apart from the high-interest rates and substantial EMI payments, those who apply for personal loans stand to benefit far less in terms of tax breaks. You are given at least two claims under the Income Tax Act of 1961 with a loan against property.

What are the Tax Benefits on a Loan Against Property?

Now that you know loan against property is taxable or not, I will share with you the tax benefits of it.

If the sanctioned loan amount is used for personal purposes, such as supporting further education, organising a wedding or vacation, or paying medical bills, borrowers should be aware that there is no mortgage loan income tax exemption. Additionally, borrowers of Loan Against Property will not be qualified to apply for any exemptions under Internal Revenue Code Section 80C.

When can you claim tax benefits on a loan against property? 

If the following conditions are met: 

1. You utilise the loan to buy a residential property in accordance with Section 24; (B)

2. You only utilise the loan amount for business costs, in accordance with Section 37. (1)

If: there are no tax benefits available.

1. You pay for medical expenditures with the borrowed money.

2. You used the loan money for your studies.

3. You put the money from the loan towards personal expenses like a wedding or holiday.

4. The loan sum is put to use for remodelling the mortgaged property.

I hope I was able to help you understand loan against property tax exemption and tax benefits.