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.
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 personal loans for specific purposes as discussed below.
A personal loan does not have any special tax advantages. However, there are a few circumstances that you can use to your advantage when taking out a personal loan in India. The intended use of the loan amount is the main consideration for deciding whether you are eligible to receive these advantages. If you can show that the money was utilised for that precise purpose, you are eligible to receive these benefits.
Renovation of the home: In accordance with the Income Tax Act, you are entitled to a tax deduction if you borrow money to renovate your home or repair your home.
Purchase a home or construct a home: If you borrow money to buy or build a home, you can deduct the interest you paid on the loan. You may deduct interest up to a certain limit if the home is used for personal use. The entire interest payment is deductible from your taxes if you rent it out.
Education costs: You can claim tax deductions if you take out a personal loan to pay for your own education, that of your spouse, or that of your children. For a maximum of eight years, or until the debt is repaid, whichever comes first, this deduction may be used.
Starting a business: As per the Income Tax Act, you may be allowed to deduct the interest paid on a personal loan taken out to launch or invest in a business.
While care is taken to update the information, products, and services included in or available on our website and related platforms/websites, there may be inadvertent inaccuracies or typographical errors or delays in updating the information. The material contained in this site, and on associated web pages, is for reference and general information purpose and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Subscribers and users should seek professional advice before acting on the basis of the information contained herein. Please take an informed decision with respect to any product or service after going through the relevant product/service document and applicable terms and conditions. In case any inconsistencies observed, please click on reach us.
*Terms and conditions apply