(Want to know if your Mortgage Loan will get you tax redemption or not? Here is a list of all the sections you need to know about how to get the tax reduction.)
Giving your residential or commercial property as a mortgage has been an age-old thing. It was the way to get credit in the olden days and is still a relevant way to get a loan today. People take a Mortgage Loan when they cannot get a personal or credit-based loan. All you need to apply for a Mortgage Loan is a property or land of any nature against your name.
You are most definitely eligible for tax redemptions when you put your property as collateral to the mortgage in exchange for the loan. The roots of different tax redemptions are different. Check out this guide to understand the tax redemptions relevant to your Mortgage Loan.
This comprehensive guide discusses various sections of tax reductions that will help you understand what is similar to your situation with the Mortgage Loan. Let us dive in deep to understand better.
How Does a Mortgage Loan Work?
A Mortgage Loan is when people will leverage their property or piece of land to get a loan. It is done when you cannot get a personal or credit loan. Lending institutions will offer you a fair amount of loans against property for collateral safety. The loan amount is determined based on the current market value of the property you are offering for a mortgage.
With a Mortgage Loan, you do not give up the property ownership but offer it as collateral. The lending institutions will take possession of your property or land if you cannot pay the amount of the loan you have taken from them.
When you get a Mortgage Loan like this, it becomes eligible for tax redemption. Let us check out some of the relevant tax reduction sections.
What Are the Relevant Sections for Tax Reduction?
Let us discuss some of the tax benefits that a Mortgage Loan is eligible for:
Salaried individuals can get 24(B) tax benefits on a Mortgage Loan. If you fund your new residential home, you are eligible for tax reductions under this condition. You can get a tax deduction of INR 2,00,000. You can apply these tax deductions on the interest payment against your loan.
When you use the loan you receive from mortgaging your property or land for business purposes, you become eligible for the tax deduction under 37(1). The tax benefits are available for the interest you have paid during the tenure against the processing fees and documentation fees you can write off as business expenditures.
Homeowners can get something called top-up loans. These loans are offered at lower interest rates compared to personal loans. If you have enough proof to establish that you took the top-up loan to acquire, construct, repair, or renovate a residential property, you are eligible for tax redemption. The maximum deduction you can get with this is INR 30,000.
When Are You Not Eligible for Tax Exemptions?
The clauses of Section 80C allow you to claim tax benefits. You can get such tax rebates even with an ongoing Home Loan. However, there are certain conditions in which you are not eligible for tax deductions. Here is a list of the exception situations for tax deductions.
If you use your loan amount for the following, then you are not eligible for any tax reductions.
- Education Marriage
- Medical bills
You are eligible for tax deductions if you have a Mortgage Loan, but it comes with its conditions. You need to check whether section 25(C) applies to you or Section 31(1). Be sure to know the cause behind which you use the money you receive from the loan.
Once you have established your reason for the loan, get all the necessary documents. Make sure to file for tax reductions only when you have a genuine backed-up reason. Use a Home Loan interest calculator if you need to know your interest amount before the final buy.