Save on taxes while taking a Mortgage loan

How Save on taxes while taking a Mortgage loan

How to Save Tax on Mortgage Loan’s:

A mortgage loan is a loan against property (LAP) which you can avail if you own a property in your name. Whether you own a residential property, a commercial or an industrial one, the same can be mortgaged to avail a loan against its value. The loan that you receive can be used for various personal as well as business requirements and the rate of interest is lower than on a personal loan. Besides these facts, did you know that your loan against property also helps in saving your taxes?

Yes, a mortgage loan allows you some tax savings. If the loan is utilized for specific uses, you can avail tax benefits. Let’s understand what these uses are which allow tax benefits on LAP.

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Tax benefits on loan Against property

 

  • When the loan is used for improving the business

If you avail a loan against property for improving your business, the interest that you pay on the loan can be availed as a tax-free expense.

 

  • When the loan is used to repay an existing home loan

If you had taken a home loan and now require a mortgage loan to repay the principal and interest of the outstanding home loan, you can avail a tax benefit. There are, however, two conditions to be fulfilled to avail the tax benefit –

 

  • The original home loan should have been taken to buy, construct, extend or renovate a house property
  • The house property should be used for residential purposes. You can use the house yourself or let it out to tenants. In either case, the house would be deemed to be used for residential purposes.

 

If both the above-mentioned conditions have been fulfilled, two tax benefits would be available on the mortgage loan. The interest payments, up to INR 2 lakhs, would be allowed as a deduction under Section 24(b) of the Income Tax Act. The principal component of the loan would be allowed as a tax deduction, up to INR 1.5 lakhs under Section 80C.

 

If, on the other hand, the existing home loan has been taken for a commercial property or if the property is used for professional use, the entire amount of interest paid would be allowed as tax-free expense as per Section 36(1) (iii). The principal amount of the loan would again be allowed as a tax-free deduction under Section 80C up to INR 1.5 lakhs.

 

Generally, a loan against property does not allow any other tax advantage. However, you can avail a mortgage loan on a property for which you have already availed a home loan. The existing home loan would continue to give you the tax benefits which it allows.

See also: Home loan documents

Though the loan against property has limited tax benefits, you cannot ignore its benefits for which the loan is a preferred choice for funds. The loan gives you the following benefits –

Loan Against Property Has Limited Tax Benefits:

  • You can avail a high quantum of loan since the loan is allowed against the value of the property
  • The interest rate is low because the loan is secured against the property
  • The loan can be used for multiple uses – both personal and commercial in nature
  • The repayment tenure is long. Thus, you can pay off the loan in affordable EMIs
  • The loan is easy to avail

 

So, if you have any financial obligations which require funds and you have a property to your name, mortgage the property and avail a loan.