Of the several types of mortgage loans, individuals often prefer to choose a loan against property over others. This is because of minimum eligibility criteria, easy application process, sumptuous loan amount, lower interest rate, and extended tenor. LAP also offers several other advantages, which often extend to tax benefits.
A loan against property tax benefits a tax exemption on the interest paid on a LAP individual can benefit from several laws to reduce the burden of paying hefty interest on a LAP. However, there are certain eligibility criteria a loan seeker must fulfill to qualify for LAP tax benefits.
Loan against Property tax benefits
Under the Income Tax Act, of 1961, there are two laws which loan seekers can benefit from.
Entrepreneurs who have applied for LAP to meet their urgent business-related expenses can gain LAP tax benefits from this law.
Individuals seeking a LAP for purchasing a residential property can benefit from this law.
The rebate is generally on the interest and additional charges of a LAP and can be up to Rs. 2 lakhs. To stand eligible for the benefit, a borrower needs to know certain prerequisites.
Tips to qualify for a loan against property tax exemption
Below are a few tips by following which an individual can qualify for lap tax benefits:
Individuals must be salaried
Employment is necessary if individuals want to enjoy a loan against property tax benefits. They must be employed at a reputed MNC, a public sector company, or even a private limited company. Also, applicants must have a valid employee identification card and other documents confirming their employment at the company mentioned.
LAP should be used for residential property only
A loan seeker must invest the entire loan amount to only purchase a residential property. It is also applicable to constructing a property from scratch. The laws strictly mention that if borrowers use the money to cover expenses other than residential purposes, they are disqualified from tax benefits.
Entrepreneurs must use LAP only for business expenses
The law strictly mentions that entrepreneurs can enjoy the loan against property tax benefits only if they use the loan amount for business purposes. Business owners can include documentation charges, processing fees, and interest rates while claiming the exemption. However, investing the money only in business-related expenses is important, not for personal usage.
Successfully linking the loan amount with its end-use
Officials evaluating the documents understand that there is a varied range of residential property purchases or business expenses. An individual might list these expenses during claiming the rebate. However, it is imperative to establish a clear connection between the purpose of a loan against property and its usage.
Financial institutions extend pre-approval offers to customers on various products including home loans and loans against property. These offers to speed up the loan approval process and make it simple and hassle-free. Customers can check their pre-approved offers by entering a few basic details like name and contact number.
Scenarios when an individual is not eligible for LAP tax benefits
There are several circumstances under which an individual is ineligible to benefit from a tax exemption on LAP. These are as follows:
- Individuals using the loan amount for personal expenses are ineligible. Personal expenses include planning a vacation, buying a luxury item, financing a wedding, medical expenses, etc.
- The tax exemption application will be canceled if borrowers use the money to refurbish an already mortgaged property.
- If a loan seeker claims the rebate on principle, the rebate will not be granted. This is because the laws are applicable for exemption on the interest only.
- Individuals are not eligible for tax deduction under section 80(C) of the Internal Revenue Code since it is applicable only for home loans.
- If there is no link between the purpose of seeking the loan and the usage of the money, the tax exemption application might get rejected.
A loan against property tax benefits is a relief to loan seekers paying hefty interest, even if the charges are relatively less. The application process for a loan against property is easier and requires less stringent eligibility criteria than unsecured loans.
Read more blogs on this website.