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Claim tax exemptions with these 3 Loan options

  • Highlights

  • Interest on education loan is exempted under Section 80E

  • Deductions of up to Rs.1.5 lakh for principal repayment on home loan

  • Tax benefits of up to Rs.2 lakh on home loan interest

  • Tax benefits on personal loan used to fund asset purchases

Loans are an ideal financing option that allow 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 the home loan, education loan, and the personal loan to meet your needs with convenience.

The interest paid on loans now just lower 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 then 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 basis the interest of the education loan 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 up to 8 years on your repayment. This means that if your tenor exceeds 8 years then 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. 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. 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 is completed 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 in case you are claiming the interest deduction on your second home loan.

Impact of GST on Home Loans 

Moreover, if you rent out the property and do not occupy the premise, then there is no limit on the exemption you can claim, regardless of the status of the property. Alternatively, you can claim the interest in 5 equal instalments if the loan is used for the construction of a property. This you can claim consecutively for 5 financial years, starting from the year the construction starts to the year you get possession. Also, 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 which costs under Rs.50 lakh and f 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 a Bajaj Finserv, Flexi Personal Loan you can further reduce your EMIs by up to 45% by getting an attractive interest rate and flexible repayment terms.

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.

DISCLAIMER: The personal loan features mentioned in this article are subject to change, based on policy revisions. For the updated product details, please visit the Bajaj Finserv Personal Loan page here.


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