What are the Tax Benefits Associated with Loan against property?

For most people, owning a home is a real treat. The Indian government has traditionally favored encouraging residents to invest in real estate. That’s why a housing loan qualifies for a Section 80C tax deduction. And then when you purchase a home with a home loan, you get a slew of tax perks that help you save money on your taxes. Many programs, such as the Pradhan Mantri Jan Dhan Yojana, are giving the Indian housing market a green light by attempting to address issues of availability and affordability. We’ll go through all of the tax benefits of loan against property in this article.

Tax benefits of loan against property

Interest on a home loan is deductible.

For the purchase or building of a home, a home loan is required. If the loan is for the construction of a residence, it must be finished within five years of the end of the fiscal year when the loan was obtained. If you’re paying an EMI for a home loan, there are two parts to it:

• Payment of interest
• Repayment of the principal

Section 24 allows you to deduct the interest part of your EMI payable for the year from your overall revenue up to a total of Rs 2 lakh. The part payment for interest charged on self-occupied dwelling estate is Rs 2 lakh from the evaluation year 2018-19 onwards.

Repayment of principal deduction

Section 80C allows you to deduct the principal amount of your EMI payments for the year. The sum which can be claimed is limited to Rs 1.5 lakh.

However, the house property must not be sold during 5 years of possession in order to claim this deduction. Otherwise, the earlier deduction will be deducted from your revenue from the year of purchase.

Stamp duty & registration fees are deducted.

A reduction for custom duties and registration expenses can be taken under Section 80C in addition to the principal repayment deduction, but only up to Rs 1.5 lakh in total.

It can, however, only be claimed in the year in which the expenses are incurred.

Section 80EE provides an additional deduction.

Home buyers are eligible for an additional deduction of up to Rs 50,000 under Section 80EE. The following conditions must be completed in order to claim this deduction:

• The loan should be for no more than Rs 35 lakh, and the property should not be worth more than Rs 50 lakh.
• The loan must’ve been approved between April 1, 2016 and March 31, 2017.
• And the applicant doesn’t even own other residence at the time of loan approval, indicating that he or she is a first-time home buyer.

A deduction for a combined mortgage is available.

If the loan is obtained jointly, each loan holder can deduct house loan interest up to Rs 2 lakh and principal repayment up to Rs 1.5 lakh in their tax returns under Section 80C. They must also be co-owners of the property acquired on loan to be eligible for this deduction. As a result, if you take out a loan alongside your family, you may be able to claim a higher tax benefit.

Section 80EEA provides an additional deduction.

Budget 2019 has added an additional deduction for home buyers under Section 80EEA for a maximum of Rs 1,50,000 to stimulate the housing sector.

The following conditions must be completed in order to claim this deduction:

• The property’s stamp value is not more than Rs 45 lakh.
• The loan had to be approved between April 1, 2019 and March 31, 2022. (extended from 31 March 2021)
• The applicant does not own other residence at the time of loan approval, indicating that he or she is a first-time home buyer.
• If claiming deductions under this section, the individual should never be able to claim deductions under Section 80EE.

Interest paid on a home loan during the pre-construction period is deductible.

The Income Tax Act also allows you to deduct such interest, which is known as pre-construction interest. Beyond the deduction you however are qualified to claim from your residential property income, a reduction in five equal installments commencing from year the property is purchased or construction is finished is allowed. However, the highest amount that may be claimed is Rs 2 lakh. If your house loan qualifies for a reduction through Section 80EEA, you may claim an additional Rs 1.5 lakh deduction.

Benefit per Section 37 (1) of the Internal Revenue Code:

You can include any expenses linked to your operational processes in your income/loss statement that aren’t capital or personal expenses.

Yet if the loan was undertaken for business or personal reasons, a loan upon property is not tax deductible. When you took out a home loan, you are buying property in exchange for payment, thus the lending may be tax-free. When it comes to corporate entities purchasing commercial properties, same is true (to some extent). A loan on land, on the other hand, means you borrowed the money through pledging your home as collateral, and so the amount is not tax deductible.

In the following scenarios, no tax exemptions are allowed:

If you are using your loan money for tuition, wedding, travel, or medical expenditures, you won’t get a tax break.

Section 80C contains several provisions that enable you to seek tax benefits. You may be eligible for tax benefits even if you have a current home loan; but, there have been no tax benefits on Loans Against Property per 80c of the Internal Revenue Code.