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How personal loan can provide you tax benefits?

  • Highlights

  • Personal loans from a valid source are not taxable

  • The tax benefits on a personal loan depends on its use

  • Personal Loan for renovating or buying a home can provide tax benefits

  • Reduce tax liability by investing the loan for business use and asset purchase

Personal loans are an easy method to avail 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.

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Since personal loans are unsecured loans, you don’t need to pledge any assets as 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 usually 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 as a part of your income when you’re 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 valid source, like a bank or another financial institution, as loans from unknown sources might be considered as part of your income.

Additional Read: How personal loan can provide you 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, purchase or renovation of your house, business expansion, etc.

Personal loans for your house

As per the section 24 of the IT Act, if the loan amount is used for the purchase or construction of a piece of property, then the interest paid can be claimed as an exemption from your taxable income. Hence, if you availed 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

For a self-owned house, interests up to Rs.2 lakh can be deducted. However, for a rented house, the entire interest paid on the personal loan would be eligible for tax benefits. Be sure to save all the related documentation as proof that you used the loan amount for your home though.

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 while 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, then the interest paid would be added to the cost of acquisition. This will reduce the capital gains, and in turn the tax liability.
Personal loans are therefore, 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

The content of this document is meant merely for information purposes. The personal loan features mentioned in this article are subject to updation, completion, revision, verification and the same may change materially based on policy revisions. For more details, please visit our Personal Loan terms and conditions page here.

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