Loan Against Property Tax Benefits in India 2026: What Section 24 and 37(1) Actually Let You Claim

By Nitish Bharadwaj · Published Aug 25, 2026 · 7 min

Loan Against Property (LAP) tax treatment depends entirely on end-use, not on the fact that it's secured by property. Interest is deductible under Section 24(b) — capped at ₹2 lakh/year for self-occupied, uncapped for let-out — only if funds buy, build, or repair a property. Used for business instead, full interest is deductible under Section 37(1), with no cap. What never applies is Section 80C on the principal — a benefit home loans get but LAP never does. This guide covers the exact rules and proof you need to keep.

A Loan Against Property (LAP) is secured by the same kind of asset as a home loan — real estate — so it's a common assumption that it carries the same tax treatment too. It mostly doesn't. Where a home loan's tax benefit is tied to the property you're buying, a LAP's tax benefit is tied entirely to what you actually do with the money you borrow against a property you already own. Get that end-use test wrong, or skip the paperwork that proves it, and you can lose a deduction you were otherwise entitled to.

The Rule That Decides Everything: End-Use, Not Collateral

A LAP lets you borrow against a residential or commercial property you already own, typically at a lower rate than an unsecured personal loan — our LAP vs personal loan comparison breaks down the cost difference on a ₹10 lakh loan. But the Income Tax Act doesn't care that the loan is secured by property; it looks only at where the money went. The same LAP amount can be fully deductible, partially deductible, or not deductible at all, purely based on end-use.

Section 24(b): When the Money Buys, Builds, or Repairs a Property

If you use LAP proceeds to purchase another property, construct on land you own, or carry out repairs and renovation, the interest qualifies for the same Section 24(b) deduction a home loan gets. For a self-occupied property, that's capped at ₹2 lakh a year; for a let-out property, there's no cap on the interest deduction itself, though the loss you can set off against your other income in one year is capped at ₹2 lakh, with the balance carried forward for up to 8 assessment years — identical to the rule for a regular home loan's Section 24 and 80C benefit.

Section 37(1): When the Money Funds a Business

If you're self-employed or run a business and use LAP proceeds for working capital, equipment purchase, or expansion, the interest is deductible in full under Section 37(1) as a business expense — there's no ₹2 lakh cap here, unlike the property-purchase route. This is often the single biggest tax advantage of using property as collateral for a business loan instead of an unsecured one, since the deduction reduces your business's taxable profit directly rather than competing with the house-property income cap.

The One Benefit LAP Never Gets: Section 80C

A home loan lets you claim up to ₹1.5 lakh a year on principal repayment under Section 80C. A Loan Against Property never qualifies for this, no matter what the money is used for — even if you use the entire LAP amount to buy a residential property outright. This is the single most common misconception among LAP borrowers, and it's worth planning around rather than discovering at tax-filing time: only the interest can ever be deducted on a LAP, never the principal.

Old Regime vs New Regime

The new tax regime changes this calculation the same way it changes a home loan's. Section 37(1)'s business-expense deduction is unaffected by regime choice, since it isn't a Chapter VI-A deduction — it reduces business income directly. Section 24(b), however, follows the same restriction as a home loan: the ₹2 lakh self-occupied deduction disappears entirely under the new regime, and a let-out property's interest can only be set off against rental income itself, with no cross-head set-off and no carry-forward.

LAP vs a Straight Home Loan on Tax Alone

If your only goal is buying a residential property and maximising tax benefit, a dedicated home loan usually wins outright — it qualifies for both Section 24(b) and Section 80C, while a LAP used for the same purpose only ever gets the interest-side benefit. LAP earns its place when you need funds for a purpose a home loan can't cover — business expansion, a child's education, or debt consolidation — at a rate meaningfully lower than an unsecured loan. Compare the actual cost difference in our LAP vs personal loan guide before assuming the tax angle alone justifies the choice.