Loans are an ideal financing option that allows you to raise funds quickly to meet a range of personal and professional requirements. You can take a range of unsecured and secured loans such as home loans, education loans, and personal loans to meet your needs with convenience.
The interest paid on loans now lowers your tax liability by increasing your cash outflow, but some of them also come with tax exemptions, enabling you to save more. Here are three loans that can offer you these cash savings.
1. Education loan
If you take a loan to fund the education for yourself, your spouse, your children, and any child for whom you are a legal guardian, you can claim tax deductions for the interest on this loan. You can claim tax exemptions from your total taxable income under Section 80E of the Income Tax Act based on the education loan interest you are repaying. There is no maximum cap in terms of your total claim. However, you cannot claim any exemption vide the principal repayment for the education loan. Also, you can claim this exemption for up to 8 years on your repayment. It means that if your tenure exceeds 8 years, even though you keep repaying EMIs, you will not be able to show that in your IT return to fetch exemptions.
2. Home loan
If you buy a house using a home loan, then the amount you repay towards the principal and interest of your home loan makes you eligible to claim a tax deduction. Here, you can claim up to Rs. 1.5 lakh under Section 80C of the Income Tax Act for the principal repayment. You cannot claim this benefit on under-construction properties and on properties that you sell within 5 years of possession. However, you cannot claim this benefit on under-construction properties and on properties that you sell within 5 years of possession. But, you can claim a deduction of up to Rs. 5 lakh per year on your second home purchase, provided you do not sell the new house for up to 5 years from the day you get the possession.
Further, the interest you repay on your home loan allows you to claim deductions under Section 24 of the Income Tax Act. For example, if your property is self-occupied, you can claim an exemption of up to Rs. 2 lakh on it, provided the construction of the property completes in 5 years. In case the construction exceeds this time limit, then you can claim only Rs. 30,000. This time frame reduces to 3 years if you claim the interest deduction on your second home loan.
Moreover, if you rent out the property and do not occupy the premises, then there is no limit on the exemption you can claim, regardless of the status of the property. Alternatively, if the construction of the property uses the loan, you can claim the interest in 5 equal instalments. You can claim this consecutively for 5 financial years, starting from the year the construction starts to the year you get possession. As a first-time home buyer, you can also benefit from an additional deduction of Rs. 50,000 for the home loan interest payments under Section 80 EE. However, to avail this benefit, you must purchase a house that costs under Rs. 50 lakh, and your home loan, in this case, should be less than Rs. 35 lakh.
3. Personal loan
Personal loans used to fund travel expenses, holiday bookings, medical expenditures, hospital charges, and weddings do not allow you to enjoy tax benefits. Here, the loan is regarded as an external income under the Indian Income Tax parlance. However, if you use the loan to buy an asset or invest it in your business to fund developmental proceedings then you can claim tax exemptions basis the loan repayment. So, for example, say you buy assets such as jewellery, shares, and land using funds from a personal loan. Then you can claim deductions for your loan only when you sell these assets. Here, the interest you repay on the loan becomes the cost of acquisition of the asset. When you sell the asset, you can subtract this cost of acquisition from your taxable income. You can claim this deduction in the financial year corresponding to the sale. With Bajaj Finserv Flexi Personal Loan you can further reduce your EMIs by getting an attractive personal loan interest and flexible repayment terms. You can also calculate EMIs beforehand with our personal loan EMI calculator based on your loan amount.
You can also use the EMI Calculator to know your monthly EMIs, tenure, and interest rate before you opt for a personal loan.
Now that you know these tax benefits, apply for a loan now with lenders like Bajaj Finserv to reap the benefits of affordability along with tax benefits in the next financial year.
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