Securing a loan against property is like having the cake and eating it too — you use the value (of property) that is otherwise locked up as you continue using it.
Buying a property is fulfilling a long-cherished dream. However, it is not a very liquid investment, and you cannot easily convert your house into money if you need to. However, did you know that you can unlock the property’s value as you continue to live there?
You can do this by offering your property as collateral to secure a loan. A loan against property (LAP) will give you double benefits: you can tide over your financial crisis and continue to own and occupy the property. The tax benefits you can potentially receive are considerable.
Loan Against Property — The Interest Rates
Lenders accept your property as collateral to grant you a secured loan. The tenure of these loans is 20 years and above. The loan against property interest rate for these loans ranges from 8-25%.
Tax Deductions
A loan against property is not eligible for a tax deduction unless it is a home loan.
1. Tax Deductions for Interest on Home Loan
Prerequisites:
The loan is taken only to buy or construct a house property,
Complete the construction of the house within five years from the financial year-end in which you took the loan.
2. Deduction Under Section 24
You can claim a tax deduction from your total income for the interest amount you pay as EMI in the year. The maximum limit is INR 2 Lakh.
The tax benefit for a self-occupied house property is up to INR 2 lakhs.
There is no upper limit for the let-out property.
You can claim an overall loss of up to INR 2 lakhs.
Claim the deduction in the financial year in which you complete building the house.
3. Deduction on Interest on Home Loans During Pre-Construction
You can claim a pre-construction interest deduction from the year of acquiring the property to the year of completion of construction in five equal installments not exceeding INR 2 lakhs.
4. Deduction on Repayment of Principal Amount
Under Sec 80C, you can claim a deduction for the principal amount of EMI of the year up to INR 1.5lakh.
You cannot sell the house property within five years of acquisition.
5. Deductions Under Section 24(B)
The Indian people receive various tax benefits on loans against property. Salaried persons who use the loan amount to purchase one more house property can claim deductions up to INR 2 lakhs.
Prerequisites:
Proof you bought a residential property with the funds.
You can claim tax benefits only for the interest you pay and not for the principal amount.
6. 80 EE Additional Deductions
As a home buyer, you can claim tax benefits up to INR 50,000.
Prerequisites:
The loan amount is INR 35 lakhs or less for a property whose value is not more than INR 50,000.
The loan has been sanctioned after 1st April 2016 but before 31st March 2017.
The assessor is a first-time homeowner.
Conclusion
Both salaried and non-salaried individuals can secure a loan and claim deduction under the sections of the Income Tax Act of India. It reduces your tax outgo.
Ayesha completed her Doctor of Philosophy in Biochemistry and started her career as a College Lecturer in 2013. Today, she’s a happy mom of 2 Kids in the field of digital marketing. She loves reading books, spending time with her family, and making delicious food for her husband.
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