Individuals can leverage mortgage loan tax benefits if they limit their credit usage to either buying homes or expenses of businesses. This will allow them to reduce their tax obligations to some extent.
Borrowers prefer a loan against property or a mortgage loan to meet their credit shortages for a variety of reasons, including no end-use restrictions, low interest rates, and so on. Individuals can also get mortgage loan tax benefits on the interest component of EMIs, depending on how they use their credit. So, they must know how they can enjoy this benefit to reduce tax obligations.
What are the tax benefits on loans against the property?
The usage of borrowed credit is the main factor that decides whether individuals will be eligible for tax benefits on mortgage loans. Following are different scenarios in which individuals can reduce their net taxable income on the interest component of loans against property instalments:
Using the credit to meet business expenses
Since there is no end-usage restriction, individuals can utilise the borrowed capital to meet their business expenses. In such a scenario, they can get a tax deduction under Section 37(1) of the Income Tax Act of India. Borrowers can claim this benefit on the interest component of EMIs paid in the financial year, along with the loan’s processing fees and documentation charges.
Leveraging the credit to buy a residential property
Section 24(B) of the Income Tax Act of India also entitles individuals to get mortgage loan tax benefits on their purchase of a home. They can claim a deduction on the interest component of EMIs for up to Rs.2 lakh.
To claim tax deductions under the above-mentioned sections, borrowers must file income tax returns or ITRs on or before the due date.
When will one not get a mortgage loan tax benefit?
Individuals should also be aware of when they cannot claim this tax benefit:
- They cannot reduce their tax obligations under Section 80(C), which allows borrowers to get tax benefits on the principal component of home loan EMIs.
- Borrowers will not be able to claim this benefit if they leverage the principal amount to meet expenses other than buying a home or investing in businesses.
Besides this tax benefit, individuals can also get other advantages by taking this loan against property.
What are some other benefits of mortgage loans?
The following are different features and benefits that this loan against property comes with:
Higher loan amount
Individuals can get a sizeable credit amount through this facility and comfortably meet their big-ticket expenses. The loan amount, however, depends on the current market price of their property. Generally, lenders give around 75% of the property’s value as a loan.
Lower interest rate
Lending institutions offer this credit facility at a much lower interest rate. This is mainly because of the mortgage they get against the lending. It gives them confidence that the loan applicant will not default on his or her repayment because the collateral will be released only after full repayment. Due to this mortgage loan and interest rates feature, borrowers also enjoy affordable EMIs. In this regard, individuals also need to know the factors that affect the interest rate of loans against property.
Continuation of the property usage
Unlike gold loans, in this credit facility, individuals can continue to use their property, although they are collateralised. So, if you mortgage your rental or commercial property, you can continue enjoying the earnings from those.
How to apply for a mortgage loan?
Here is a stepwise guide to applying for mortgage loans or loans against property:
Step 1: Visit the official website of your preferred financial institution
Step 2: Search out the application form for loans against property
Step 3: Enter some basic details, including mobile number
Step 4: Verify the contact number with the OTP
Step 5: Fill in the application form with all the necessary property, personal and income details
Step 6: Submit your duly-filled application form
After this, lenders will get in touch with you for the following processes. Alongside this, individuals should also have an idea about how lenders process the loan against property.
Moreover, some financial institutions also come with pre-approved offers for their existing customers. These offers are available on financial products like home loans and loans against property. Customers can significantly reduce the overall processing time of their loans by accepting these specialized offers. It only takes them to mention their names and contact details to check their pre-approved offers