How to Avail Tax Benefits on a Gold Loan
Gold loans are popular funding options that come with attractive features and benefits. High-value financing combined with a long repayment tenure let you cover big-ticket expenses and complete repayments with ease. When getting one of these loans, you should also look for gold loan tax exemption benefit available.
Any tax deduction or exemption that a borrower may avail depends on the usage of the funds and the quantum of loan utilised. Below are listed the avenues where a gold loan borrower can enjoy tax benefits.
What are the tax benefits of Gold Loan?
1. Home improvement financing
Borrowers can avail tax exemptions on gold loan amounts utilised towards financing home improvement. The home improvement tax benefits are available under Section 80C of the Income Tax Act 1961 with an annual capping of Rs. 1.5 lakh. Such deduction is available for the loan principal repaid only and is applicable for all types of home repair, replacement, and improvement expenses.
2. Residential property purchase or construction
The Income Tax Act’s Section 24 makes a borrower eligible for a tax exemption on gold loan if the amount is used for residential property purchase or construction. The deduction amount available annually is limited to Rs. 2 lakh and is applicable for interest payable towards such loan repayment. The residential property must be self-occupied for the deduction to apply.
3. Use towards business expenses
The gold loan tax benefits are available to borrowers if they utilise the loan amount towards business expenses. When the loan is used to pay for business expenses, the interest paid on the loan amount is a business expense that can be deducted under the Income Tax Act.
4. Asset purchase
Tax exemption on gold loan is also applicable if the amount availed is utilised for purchase of an asset other than property. A borrower can avail such benefit only in the financial year when the asset is sold. The interest paid towards such loan amount utilised for asset purchase is considered as the cost of acquisition, effecting tax benefits to ensure.
A borrower should also know that the total loan amount is kept out of the income, so the loan is not taxable.
Documents Required to Avail Gold Loan
The necessary documents to submit for gold loan application revolve around KYC norms set by the lending institutions. Common gold loan documents needed for application include the following.
- Proof of identity like Aadhaar Card, PAN card, voter ID card, passport, driving licence, NREGA job card and letter from National Population Registration.
- Proof of address such as voter ID card, Aadhaar Card, ration card, passport, utility bills, NREGA job card and letter from National Population Registration, etc.
Interest Rates and Charges
Gold Loan interest rates start from 9.50% p.a., with a minimal processing fee of 0.12% of the loan amount (inclusive of applicable taxes).
Subject to a minimum Rs 99/- (Inclusive of applicable taxes) & maximum of Rs 600/- (Inclusive of applicable taxes)
Compare interest rates and charges on gold loans to find the most affordable borrowing option for easy repayment of the advance. Make the most of available tax benefits on gold loan to enhance savings on loan repayment.
Frequently asked question
Gold loan tax exemption can be achieved when the borrowed funds are invested in specified tax-saving instruments like bonds or schemes. The interest paid on the gold loan becomes eligible for deduction under certain tax regulations, reducing your taxable income.
In India, gold loans themselves are not taxable, but the interest paid on them can have tax implications. Eligibility for a tax exemption on gold loan interest payments exists under specific conditions, such as when the loan is used for specified purposes like property purchase or business investments, as per the Income Tax Act.
In India, there is no specific exemption for the quantity of gold owned under income tax laws. However, gold loan interest payments may qualify for tax deductions under certain conditions.
