TABLE OF CONTENTS
- What Is a Mortgage Loan?
- Are Mortgage Loans Eligible for Tax Benefits?
- Mortgage Loan Tax Benefits Under Section 24(b)
- Tax Benefits on Mortgage Loan Under Section 37(1)
- Claiming Tax Benefits When Loan Proceeds Are Used for Other Loans
- No Tax Benefit on Principal Repayment – Clarification
- How to Claim Mortgage Loan Tax Benefits (Step-by-Step Process)
- Ways to Maximise Tax Savings on Mortgage Loans
- Conclusion
- FAQ
A mortgage loan is one of the most reliable ways to raise funds when you need a large amount of money. Many people approach trusted lenders like PNB Housing because of their simple processes, transparent charges, and quick disbursal. As a borrower, it’s important to understand how mortgage loan tax benefits work so you can reduce your yearly tax burden.
This guide explains all tax rules in simple terms, including tax benefits on mortgage loans in India, conditions, limits, required documents, and tips to save more.
What Is a Mortgage Loan?
A mortgage loan, also known as a Loan Against Property (LAP), is a secured loan in which you pledge your residential or commercial property as collateral. You can continue to use the property while repaying the loan.
Banks and NBFCs, including PNB Housing, usually offer up to 70% of the property’s market value as a loan amount.
Understanding Mortgage Loan vs. Home Loan
Many people confuse mortgage loans with home loans. A home loan is taken to buy or construct a house. A mortgage loan is taken by pledging property for any personal or business need.
The main difference is that home loan tax benefits are much broader, while tax benefits on LAP are limited.
Types of Mortgage Loans Offered by Banks and NBFCs
- Loan Against Residential Property
- Loan Against Commercial Property
- Loan for Purchase or Construction of Commercial Property
- Lease Rental Discounting
PNB Housing offers all of these with doorstep service and flexible repayment options.
Are Mortgage Loans Eligible for Tax Benefits?
Many borrowers ask, Can I get a tax benefit on a mortgage loan? The answer depends on how you use the loan amount. Mortgage loans do not automatically qualify for tax benefits like home loans. Still, certain deductions are allowed under the Income Tax Act.
Tax Deductions Available under the Income Tax Act
- Section 24(b): interest deduction under specific conditions
- Section 37(1): deduction when the loan is used for business purposes
However, principal repayment is not eligible for tax benefits.
When Mortgage Loan Interest Is NOT Eligible for Tax Benefits
No income tax benefit on a mortgage loan can be claimed if the borrowed amount is used for:
- personal expenses
- education and weddings
- buying jewellery
- day-to-day household use
Tax benefits apply only when the loan proceeds are used for a house or business purpose.
Mortgage Loan Tax Benefits Under Section 24(b)
Section 24(b) allows interest deduction if the mortgage loan is used for:
- buying a home
- constructing a home
- renovating or repairing a house
This is similar to Section 24 income tax benefits available on home loans.
Interest Deduction Limit and Eligibility Conditions
Under Section 24(b):
- You can claim up to ₹2 lakh interest deduction per year if the property is self-occupied.
- For let-out property, the full amount of interest can be claimed, but the total set-off limit against other income is restricted to ₹2 lakh.
What Documents Are Required to Claim This Deduction?
- Loan sanction letter
- Interest certificate from the lender
- Proof showing how the loan proceeds were used (invoices, payment proofs, bank statements)
- Property ownership documents
PNB Housing provides an interest certificate that simplifies tax filing.
Tax Benefits on Mortgage Loan Under Section 37(1)
This section is useful for people who use the loan for business-related expenses.
Claiming Tax Benefits for Business or Commercial Use
Section 37(1) allows you to claim mortgage loan interest as a business expense if you use the loan for:
- working capital
- purchasing machinery
- paying suppliers
- expanding business operations
You can claim the entire interest amount without any upper limit.
When Can You Claim a Deduction as a Business Expense?
You can claim the deduction if:
- The loan is taken in your name
- The property pledged belongs to you
- The loan funds are used wholly and exclusively for business Keep invoices and proof ready for tax filing.
Claiming Tax Benefits When Loan Proceeds Are Used for Other Loans
Some borrowers take a mortgage loan to repay an existing home loan. Many ask, Can I get a tax benefit on a second home loan in such cases? Yes, but only if you can show that the amount was used towards the home property.
Borrowed Against Property to Repay Existing Home Loans
If you use mortgage loan funds to repay a home loan, interest paid can be claimed under Section 24(b). Principal repayment, however, still does not qualify.
Deduction Calculations with Sample Scenarios
- Self-occupied property → up to ₹2 lakh
- Let-out property → full interest allowed, but only ₹2 lakh set-off allowed
- Business use → no limit under Section 37(1)
No Tax Benefit on Principal Repayment – Clarification
Many people mistakenly assume they can claim Section 80C deductions on mortgage loans. But this is incorrect.
Why Section 80C Does Not Apply to Mortgage Loans
Section 80C applies only to:
- home loan principal
- ULIPs
- PPF
- life insurance
Mortgage loan principal cannot be claimed under this section.
Exceptions You Should Know (Home Improvement / Renovation Cases)
If you use the mortgage loan for home improvement or renovation, the interest can be claimed under Section 24(b). But principal remains non-deductible.
How to Claim Mortgage Loan Tax Benefits (Step-by-Step Process)
Required Documents
- Interest certificate
- Usage proof
- Bank statements showing loan utilisation
- Property papers
How to File While Submitting ITR
- Select the correct ITR form.
- Go to “Income from House Property” or “Business Income”.
- Add the interest amount under the allowed section.
- Upload the required documents if your return is selected for scrutiny.
Ways to Maximise Tax Savings on Mortgage Loans
Using a Mortgage Loan for Business Expenses
Business owners can claim full interest as a deduction.
Leveraging Top-Up Loans for Tax Savings
If you take a top-up for home renovation, you can claim interest under Section 24.
Joint Ownership for Higher Tax Deduction
If the property and mortgage loan are in joint names, each co-owner may claim up to ₹2 lakh interest deduction, similar to joint home loan tax benefit rules.
Conclusion
Mortgage loans are extremely useful for raising large funds while keeping ownership of your property. While tax benefits are more limited compared to home loans, you can still save a significant amount if you use the loan for home-related or business-related purposes. PNB Housing offers simple eligibility checks, doorstep services, and a smooth disbursal process, making it easier to plan your finances wisely.
FAQ
1. Can I claim tax benefits if the house is under construction?
Yes. Interest can be claimed in five equal installments after completion.
2. Are mortgage loan tax benefits applicable to a top-up home loan?
Yes, if the money is used for home improvement or construction.
3. Can I claim tax benefits on a loan for a second home?
Yes. Tax Benefits on Second Home Loan allow interest deductions up to ₹2 lakh under Section 24(b)
4. Is mortgage loan interest fully tax-deductible?
Only for business use under Section 37(1). For house property, the ₹2 lakh limit applies.
5. Do tax benefits apply under the new tax regime?
Most deductions, including Section 24, are not available under the new regime.
6. Can I claim both Section 80EE and 80EEA together?
No. You can only claim one.
