Understand Two Hidden Tax Benefits on Before Applying for Mortgage Loan in 2023
Mortgage loans or loans against property are secured credit facilities letting individuals leverage the principal for any purpose. Nevertheless, depending on the credit usage, individuals can apply for tax benefits of mortgage loans. This can help them reduce their taxable income and, thereby, their income tax obligations in a financial year.
Sections That Allow Tax Benefits on Mortgage Loans:
Following are the different Sections of the Income Tax (IT) Act of India that lets individual borrowers get tax benefits:
Under section 24B of the IT Act of India, borrowers can get tax deductions for up to Rs.2 lakh if they purchase a residential property by leveraging the credit. Salaried individuals can leverage this only on the interest component of the debt. To claim the tax benefit, they need to connect the borrowed capital’s usage with the home purchase. They cannot leverage this deduction if they utilise the principal for other expenses like education, marriage ceremony, healthcare, etc.
Section 37(1) of the IT Act lets individuals get the tax benefits on mortgage loans and the interest component of their mortgage loans if they leverage the borrowed capital for business purposes.
Individuals can claim these benefits while filling in their income tax returns (ITRs) in a financial year.
Scenarios in Which Individuals Cannot Get Tax Benefits on Mortgage Loan:
Following are some of the circumstances under which borrowers will not be able to get the tax benefits:
- Individuals cannot get a tax benefit if they utilise the principal in making a transformation of their properties.
- In contrast to the home loan, they cannot reduce their taxable income under Section 80C of the Income Tax Act of India.
Besides the tax benefits of mortgage loans, individuals can also get several other advantages from this credit facility.
Some Major Advantages of Mortgage Loan:
Competitive Interest Rate—
The interest rate of a mortgage loan is significantly lower compared to unsecured credit facilities. Therefore, the cost of borrowing and the EMI amounts are much lower. As a result, individual borrowers can easily repay the instalments of this credit.
Unlike home loans, individuals can apply for this mortgage loan to meet any of their credit requirements. For example, they can buy a car, invest in their business, pay their children’s tuition fees, etc. The lending institution does not set any limitation on the end usage of the borrowed amount.
Lenient Eligibility Parameters—
Individuals can also get the credit facility easily due to its lenient eligibility parameters. As individuals mortgage their assets, lending institutions get an assurance that their borrowers will repay the debt to release their collateral. This is why individuals generally get this credit facility despite a lower credit score.
So, individuals facing credit shortages can apply for a loan against property to enjoy all these benefits. However, they must properly know how to apply for a loan against property. This will help them avoid mistakes while requesting credit assistance and the resultant rejection of their loan application.
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