Personal loans have emerged as one
of the significant financial tools in India to avail quick and hassle-free
finance for diverse purposes.
You are also free to use the loan
amount for sending your children for higher education, debt consolidation,
going on a vacation, medical emergency and other needs.
Also, personal loans are unsecured
loan facility which means no submission of collateral or security. As a result,
the personal loan interest rate charges may be a bit higher. However, borrowers
with a robust CIBIL score may negotiate for a lower rate.
While applying for the loan, many
borrowers are often confused if they can avail any personal loan tax benefits or
not.
Hence, if you are looking to get
some information on the personal loan tax deduction, then here is a post that
will help you explore more. Read on!
Personal
loan exemption in income tax at a glance
When it comes to the personal loan tax benefits, there is no mention of any such
provisions under the Income Tax Act. But, that does not mean that you can’t
avail of any personal loan tax deductions.
As there is no specified mention of
personal loan exemption in income tax, the reason for which a borrower avails
it will be considered to grant exemptions on the same.
Thus, you can avail tax benefits on
personal loans only if you had availed it for a reason for which the deduction
in income tax is allowed. Personal loan tax deductions are allowed only in the
event of three situations. Have a look:
Conditions
under which you can get personal loan tax deductions
When you invest the loan amount in
business
If you have invested the loan amount
for your business, then the interest paid on it can be claimed as an expense.
Hence, it may reduce your tax liability and lessen the net taxable profits of
the business in which they have invested the loan amount. There is no mention
of the minimum or maximum amount that can be claimed.
When you use the amount for
buying/construction of a residential property
Anyone using the loan amount for
buying or construction of a residential property can avail personal loan tax
deductions. The tax benefit on repayment of interest for the same could be
availed under Section 24 of the Income Tax Act. The maximum personal loan
exemption in income tax that could be claimed is Rs.2 lakh. It is for the home
occupied by a borrower. If you have rented the same home to someone else, then
there is no cap on the amount that can be claimed. The personal loan borrower
needs to be the owner of the property to avail tax benefits.
When you use the loan amount for
investments in assets
The final case is when you use the
loan amount for investing in assets. Such assets could be non-residential
property, shares, jewellery, some stocks and others. You can’t claim the personal
loan tax deduction in the year when the interest is paid. But, it would be
added to the cost of acquisition. You can claim tax benefits in the year in
which you sell the mentioned assets. The deduction of taxes will be allowed
only for interest amount and not on the principal loan amount.
You are now aware of the situations
when you can grab personal loan tax benefits. Anyone using the personal loan
amount other than the discussed situations is not eligible for any tax
benefits.
Bajaj Finserv presents some pre-approved offers on
personal loans,
EMI finance, home loans, business loans and others. They are offered to
simplify your overall loan processes and less time-consuming.
