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Owing to being secured, mortgage loans are a preferable choice of financing in India. Pledging an asset as collateral, one can avail such loans for an array of purposes.

Home loans and loan against property are two types of mortgage loans that come with more benefits when compared to an unsecured loan. Where a home loan can be used for purposes only related to the construction, a Loan Against Property can have various uses be it personal or commercial. The low Interest Rates on Mortgage Loan play an important role in providing tax benefits and heavy deductions.

Apart from the benefits mentioned above, mortgage loans enable a customer to save on income tax as well.

Here are 5 facts that one needs to consider about mortgage loan tax deductions:

Note: Mortgage loans can come with either fixed rate of interest or floating rate of interest; tax benefits will differ in each case.

• Tax Benefit on Mortgage Loan Interest Rate

Customers can get income tax deduction for interest paid under Section 24.

The maximum tax deduction that an individual can get is Rs. 2 Lakh subject to the condition that the loan is being availed for construction, reconstruction, repair, renewal, or purchase of a property.  

However, the maximum limit is relaxed in case a customer does not occupy the property against which the loan is availed. In situations where the customer cannot reside in his/her property owing to their profession, business, or job, then the maximum tax-deductible amount remains Rs. 2 Lakh on the mortgage loan interest rate.

In case the owner fails to construct the property within 5 years, then he/she will only receive a maximum of Rs. 30,000 as a tax benefit.

• Tax Benefit u/s 24 is on an accrual basis.

The tax benefit provided under Section 24 is on an accrual basis, i.e. one can earn benefits on a yearly basis even if they don’t make any payment as per the mortgage loan rate.

• Tax Benefit on loan interest for first-time buyers u/s 80EE

First-time buyers can also receive income tax benefits on mortgage loan interest under Section 80EE.

Depending on the mortgage loan interest rate, they can get a tax deduction of up to Rs. 50,000.

Land Owners can avail such benefits subject to the following conditions:

1. They have bought the property within 1/04/2016 and 31/03/2017.
2. The loan taken is less than Rs. 35 Lakh and the property purchased is less than Rs. 50 Lakh.

The tax benefit will be provided to the landowners during the repayment tenure of the Mortgage loan.

In addition to loan, individuals can earn tax benefit under Section 80C for an investment made under Senior Citizens Saving Scheme (SCSS), National Savings Certificate (NSC), Public Provident Fund (PPF), Equity Oriented Mutual Funds, and Fixed Deposits.

• Tax benefit on the loan principal u/s 80C

Individuals can get a tax benefit of up to Rs. 1.5 Lakh on the Mortgage Loan principal under Section 80C. Customers have to keep the property for at least 5 years; selling or transferring the property before 5 years will result in the tax deduction becoming void.

They can also get tax benefit on the processing fee and stamp duty paid when taking the Loan Against Property.

• Tax Benefit u/s 80C is on a paid basis

Owners can avail the tax benefit only after the completion of property construction. They will also require a certificate of completion to receive the tax deduction.

These included the 5 facts associated with all the tax benefits one can receive on the mortgage loan interest rate. With a mortgage loan calculator, one can calculate their interest and figure out their total tax benefit.