Loan Against Property: How Can You Avail Tax Benefits From LAP? 

If you are planning to avail a Loan Against Property, you have to offer your property as collateral to the lender, starting with its inspection. The lender will then inspect your property and decide its value. Based on the value of your collateral property, you can obtain up to 70% or 80% of the value as a loan. The loan to property ratio will be decided by the lender too. 

Since LAP loans are secured, the interest rate is higher than that of MSME and SME loans. These loans are usually for a long-term, like a 20-year period. The tenure of the loan would also depend on your occupation. There is a chance that if you are self-employed, you will get a loan for a shorter period in comparison to the salaried workers.  

A Loan Against Property can be used for any purpose that you would prefer. It can also be seen as a personal loan but with collateral. The interest charged on personal loans is a lot higher than LAP due to the absence of collateral. However, you can enjoy certain tax benefits on the interest payments that you make for your LAP loan, not on the principal repayment. These tax benefits come with certain terms and conditions. 

Tax Benefits In Case Of LAP 

1. Exemption Under Section 37 (1) 

You can avail of tax deductions under this section if the money from the loan is used for business purposes. The benefits can be claimed on interest on loan paid, processing charges, documentation charges, and other business expenses. 

2. Exemption Under Section 24 (B)

This section is specifically designed for salaried individuals who have acquired LAP. If you have used this loan to finance another house property, you can claim a tax deduction under this section. The maximum amount that can be deducted is Rs.2,00,000, and the deductions can be applied only to the interest payments. 

When you are filing your Income Tax Returns, you will have to be prepared with the documents that will act as proof that the funds from the loan have been used to buy a property. 

Certain Cases With No Exemption 

• Suppose you are using the LAP loan for any personal purposes such as your child’s education, your marriage, a vacation, or to pay any bills. In that case, you will not be eligible for deductions under any sections of the Income Tax Act. 
• In case you are using the funds from the loan to transform and construct the respective property that you have given as collateral, you will not get any tax deductions on the interest repayment. 
• Section 80C of the Act offers tax deductions in case of home loans, but if you have taken a Loan Against Property, you will not receive any benefits. This section is only meant for exemption on fully constructed properties. 

Features Of LAP Loans 

1. Simple Documentation Process 

The documentation process is considered to be quick when it comes to sanctioning Loan Against Property. Since there is collateral included, the lender has to decide the loan to property ratio and give out the loan with minimal documentation. 

2. Repayment Flexibility 

It will depend on your lender if they give you the time frame that you prefer for the repayment of the loan. The tenure can extend up to 20 years. Some lenders extend the option of choosing the frequency of payments. 

3. Retained Ownership 

Even if you give your property collateral, the ownership remains with you. It is not possible to transfer the ownership to the lender. However, if you are unable to repay your LAP loan, you will have to let the lender obtain your property. 

4. Pre-Closure Of The Loan 

If you are in a financial position to pay back the loan before time, you have the option. However, if your loan was at a fixed interest rate, you will have to pay a substantial amount as a penalty for closing the loan before time. This is not the case with loans at a variable interest rate. 

Eligibility Criteria To Avail LAP 

• The collateral property should be within the geographical boundaries of India. It can be a commercial or residential property. 
• You should be a minimum of 25 years old and a maximum of 65 years old to get your LAP sanctioned. 
• You have to be either salaried or self-employed with a minimum income of Rs.25,000 per month. 
• The documents of the property should be legal and approved by the Government of India. 

Key TakeawaysWhen you apply for a Loan Against Property, know that there are no restrictions on the purpose you can utilize the funds for. You can obtain the loan from a Government bank or an NBFC as well. Since the loan is of a high amount, it usually takes 7-10 days to get it sanctioned.