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 gold 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 support tax exemption claims on gold loan interest
If you plan to claim tax benefits on the interest paid for a gold loan used for eligible purposes, you may need to provide the following gold loan documents:
Document |
Purpose |
Loan sanction letter & repayment schedule |
To confirm the loan details and repayment terms |
Interest certificate from lender |
To claim the interest paid as a deductible expense |
Bank statements |
To show proof of EMI or interest payments made |
Purpose declaration or affidavit |
To declare that the gold loan was used for business or home improvement |
Invoices or bills for expenses |
Proof of expenses for business or renovation purposes |
ITR forms (ITR-3/ITR-4) |
To reflect interest claimed as a deduction in tax filings |
Interest rates and charges
Gold Loan interest rates start from 9.50% p.a., with a minimal processing fee of 0.15% 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 gold loan 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.
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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.
TDS (Tax Deducted at Source) is generally not applicable on gold loans. When you take a loan against gold, the bank or financial institution provides you with a loan amount based on the value of the gold pledged, but there are no immediate tax implications on this transaction. However, if you default on the loan and the lender sells your gold, any gains made from the sale may be subject to capital gains tax. It's advisable to consult a tax professional to understand your specific obligations and to explore any potential tax benefits associated with gold loans.
The maximum loan amount you can avail of against gold varies depending on the lender and the value of the gold pledged. Bajaj Finance offers loans of up to 75% of the gold's market value. For example, if your gold is valued at ₹1,00,000, you may be eligible for a loan of up to ₹75,000. Some lenders may impose a cap on the maximum loan amount, often ranging from ₹1 lakh to ₹50 lakh. But with Bajaj Finance, you can avail a loan of up to Rs. 2 crore.
No, a gold loan is not taxable in India as it is a loan and not income. The amount received is not considered taxable under the Income Tax Act. However, interest paid on a gold loan may be eligible for tax deductions if used for business or home improvement purposes.
