Personal loans are an easy method to avail of finance for various purposes. Whether you need to fund your higher education, tackle an emergency medical situation, or plan your dream wedding, a personal loan can come to your aid.
Since personal loans are unsecured loans, you don’t need to pledge any collateral to avail the funding. As a result, personal loan interest rates are often higher than those for secured loans. However, they are also a more easily accessible source of funds to salaried and self-employed individuals than other types of loans.
Is the personal loan amount taxable?
Generally, personal loans are not taxable since the loan amount is not considered part of your income when filing income tax returns. This means that you won’t need to pay any income tax on personal loans. However, it should be noted that the loan has to be availed from a good source, like a bank or another financial institution, as loans from unknown sources might be considered as part of your income.
Additional Read: How a personal loan can provide you with tax benefits?
Tax benefits with personal loans
Personal loans do come with tax benefits, depending on the end-use of the loan amount. The Indian income tax act allows tax deductions on loans for specific purposes, like education, purchasing or renovating your house, business expansion, etc.
Personal loans for your house
As per section 24 of the IT act, if the loan amount is used to purchase or construct a piece of property, the interest paid can be claimed as an exemption from your taxable income. Hence, if you availed of the personal loan to buy or renovate your house, you would be eligible for tax deductions under section 24(b).
Additional Read: Understanding loan underwriting rules
Interests up to Rs. 2 lakh can be deducted for a self-owned house. However, the entire interest paid on the personal loan would be eligible for tax benefits for a rented house. Be sure to save all the related documentation as proof that you used the loan amount for your home.
Moreover, with the Bajaj Finserv Personal Loan, you can get instant approval, and disbursal within 24 hours, by applying online. You are also entitled to special pre-approved offers from Bajaj Finserv on home loans, business loans, EMI financing of products, and other financial services.
Just share a few basic details to check out your exclusive pre-approved offer.
Additional Read: Save money during a home renovation
Business purpose or purchase of assets
If the loan amount is invested for any business purpose or purchase of assets other than the property, the interest paid would be added to the acquisition cost. This will reduce the capital gains, and in turn, the tax liability.
Therefore, personal loans are a great option to handle urgent requirements of funds or plan an event. They can also be used as efficient tax saving options if used wisely.
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