A type of secured Loan, sanctioned against either commercial or residential property is known as Loan Against Property. Based on the location of the property, the lender decides the loan amount, which is usually 70% of the property value. It is a form of secured loan where the user pledges his/her property as security for availing of credit benefits.
While loan Against property offers you funds for your needs, did you know you can also avail some tax benefits from it?
Tax Benefits under loan against property
The borrower can avail of various tax benefits under different sections of the income tax act, which depends on the end-use of the loan credit. It can be clearly understood by the various sections and their tax benefit criteria:
1. Under Section 37(1): If the loan amount is being used for business purpose, then under this section, the borrower can avail of tax benefits on the interest being paid on the loan amount borrowed and charges associated with the loan.
2. Under Section 24: For Salaried Individuals, if the loan amount is being used for financing a new home, then a loan against property tax benefit on the interest being paid can be availed. The maximum benefit under this section is Rs 2 Lakhs.
3. Under Section 80C: Mostly applicable to a home loan, no tax benefit can be availed against this section.
4. Top up Loans: With all the necessary documents, you can also avail tax benefits on a top-up loan. However, the maximum deduction, in this case, is only Rs 30,000.
5. No tax benefit is available for individuals who are using the credit amount to modify their mortgaged property.
6. The Tax benefit is only applicable to the interest being paid and not on the principal amount repaid.
Apart from the tax benefits, various other benefits are offered by Loan Against Property. Some of which have been discussed below.
Benefits of LAP
A Loan Against Property is a secured loan, so it also offers various benefits to the borrowers. Some of these benefits include:
1. Flexible Loan Amount: There is no cap to the amount of loan one can avail of with Loan Against Property. You can get a flexible loan amount through a Loan Against property, that is directly proportional to your property price.
2. A Loan interest rate against property: Loan Against property offers a Competitive interest rate, as compared to unsecured loans.
3. Better Loan terms: In a Loan against property, the repayment tenure ranges between 2 to 20 years for both salaried as well as self-employed individuals.
4. Easy Approval Process: As LAP is a secured loan, the application and approval process is fast and easy.
5. Minimal Documentation: The documents required in a Loan Against Property is minimal.
6. High Eligibility: The eligibility criteria for a Loan Against Property is slightly liberal in terms of minimum age and income, credit history, financial stability, etc.
A Loan Against Property can be availed by both salaried, and self-employed individuals. Though it does not come with any restriction on the usage of the loan amount, the tax benefits are directly related to the usage of the funds. So you can now get a loan while also saving on your taxes.