Loans against property or property loans are a type of secured loan under which borrowers pledge a residential or commercial property as collateral. The lenders sanction 60% to 70% of the property’s value as a loan. Since loans against property are backed by security, these loans are sanctioned at low-interest rates. As of today, borrowers can avail of a loan against property at interest rates as low as 8%. Further, borrowers can choose to repay their loan over a period extending up to 20 years. This makes repayment simple and hassle-free. 

Unlike home loans, loans against property do not inherently come with tax benefits. However, since loans against property funds come with zero end-use restrictions, depending on how a borrower uses the money, they can claim certain loan against property tax benefits. Let us look at three tax benefits of availing of a loan against property. 

Tax Benefits Under Section 24(B) 

If the borrower uses the funds availed of to buy another property, they can claim tax deductions up to a maximum of Rs.2 Lakh on payments made towards interest repayment. Please remember that if you want to claim tax benefits under this section of the Income Tax Act, you will have to provide relevant documentation. 

Tax Benefit Under Section 37(1) 

If a borrower uses the loan money to fund business expenses, they can claim tax benefits under Section 37(1) of the Income Tax Act. Again, if you want to claim deductions under this Act, you will be required to provide relevant documents. 

Income Tax Benefit on Top-Up Loans

If you are tired of paying high EMIs, you can transfer your loan to another lender offering better terms and conditions, including lower interest rates. When you opt for a loan against property balance transfer, your new lender will give you the option of availing of a top-up loan. This top-up loan comes with zero end-use restrictions and you can use the money as you like. Based on how you use the top-up loan money, you can claim tax exemption. For instance, if you use the loan money to buy, construct, repair or remove a property, you can claim deductions. However, the maximum deduction available in this case cannot exceed Rs.30,000.

Loans against property are one of the only few loan options that give borrowers access to a substantial amount of money on low-interest rates. Further, the loan money comes with zero end-use restrictions. You can use the money as you like. You can use it to buy another property, pay for your child’s education, clear existing debt, start a business or give a push to your business that has gone into slump mode. Further, depending on how you use the money, you can even avail of a loan against property tax benefits. However, do remember that loans against property require you to pledge your property as collateral and therefore, people must avail of these loans after careful planning. Use a loan against EMI calculator to understand your repayment capacity and loan EMIs you can afford as well as use it to plan repayment and prepayments in advance.