What are the Tax Benefits Associated with Loan against property?
Owning a home is a dream for many, but leveraging that property to get a loan can also be a smart financial move. While a Loan Against Property (LAP) is often used for personal or business needs, the tax benefits are not as automatic as they are with a traditional Home Loan.
Under the current Income Tax Act (as of 2026), the tax benefits on a LAP depend entirely on the end-use of the funds. Here is an updated look at how you can save on taxes with a Loan Against Property.
1. Business Purpose: Section 37(1)
If you are a business owner or a self-employed professional and you use the loan amount for business expansion, working capital, or other operational expenses, you can claim significant benefits.
What is deductible: You can claim the entire interest paid, along with processing fees and documentation charges, as a business expense.
The Benefit: These expenses are deducted from your total business turnover, reducing your taxable “Profits and Gains from Business or Profession.”
Condition: You must maintain clear documentation (invoices, bank statements) to prove the funds were used exclusively for business.
2. Residential Property: Section 24(b)
Even though it is a “Loan Against Property,” if you use the borrowed money to fund the purchase, construction, or renovation of another residential property, you can claim interest deductions.
Self-Occupied Property: You can deduct up to ₹2 Lakh of the interest paid per year.
Let-Out (Rental) Property: There is no upper limit on the interest deduction for a rented property.
Renovation/Repairs: If the funds are used specifically for repairs or renovation of your existing home, the deduction is capped at ₹30,000 (within the overall ₹2 Lakh limit of Section 24).
3. The “New Tax Regime” Note (2026 Update)
The Indian tax landscape has shifted significantly toward the New Tax Regime.
Old Regime: You can still claim all deductions mentioned above (Section 24b, etc.).
New Regime: Most deductions, including interest on self-occupied property, are not available. However, interest on let-out (rented) property can still be claimed against the rental income, even under the new regime.
Key Differences: LAP vs. Home Loan
It is important to note where a Loan Against Property does not provide benefits compared to a standard Home Loan:
| Feature | Home Loan | Loan Against Property (LAP) |
| Section 80C (Principal) | Deductible up to ₹1.5 Lakh. | No deduction on principal repayment. |
| Section 24(b) (Interest) | Always deductible for housing. | Deductible only if used for a new house. |
| Stamp Duty/Reg. Fees | Deductible under 80C. | Not deductible for the mortgaged property. |
When are NO Tax Benefits allowed?
You cannot claim any tax exemptions if the loan amount is used for:
Personal Expenses: Weddings, vacations, or household furniture.
Medical Emergencies: Hospital bills or treatments.
Education: While there is a separate Section 80E for education loans, using a LAP for tuition does not qualify for that specific deduction.
Pro-Tip for 2026:
Always obtain an Interest Certificate from your lender at the end of the financial year. To satisfy an income tax audit, you must show a direct “trail” of money from the loan disbursement to the final payment for your business or new home.
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