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Loans That Can Offer Big Tax Benefits

  • Highlights

  • Tax deductions are available on home, personal and education loans

  • Rs.1.5 lakh is eligible for deduction on home loans

  • Educational loan deductions can be for 8 years or loan tenor

  • Personal loan tax deductions are subject to certain clauses

A loan from a reputable lender can hold you in good stead and provide financial solidarity. Besides bailing you out of a short-term financial rut, they can also get you great tax benefits, provided you manage your finances well. This means while you utilize the loan to build on the purpose, you can earn monetary kickbacks in the process.

Tax benefits have been outlined by the Income Tax Act, 1961 that allay, to quite an extent, the additional burden of tax repayment on the part of borrowers.Read on to know more.

1. Home loans

A home loan is readily available to both self-employed and salaried individuals. Although the tenor of such a loan and the amount can both be on the higher side, the tax benefits you reap are big as well.

-How does a borrower benefit?
Firstly, the amount you pay towards the repayment of the principal is eligible for tax deduction under 80C of the IT Act, 1961. According to the budget of 2014, Rs.1.5 lakh is the maximum amount that qualifies for deduction.

Another benefit accrues from the deduction of interest payable towards the home loan. Rs.2 lakh is the maximum amount that can be subject to deduction in case of a self-occupied property. Additionally, the same can be claimed separately by both you and your spouse if the loan is availed jointly.

- What if you go for a second home?
In case you have bought more than one property, only one will considered ‘self-occupied’. The others will all be deemed ‘rented out’, even if they’re not. Earlier, the whole interest payable would be eligible for deduction under Section 24B of the IT Act for properties that were adjudged ‘let out’.

- Property under-construction
You are allowed to get home loan tax benefit only if the construction has been completed and you have taken full possession of the house. However, this comes with a rider; you can also claim such deductions on the interest that you’ve paid up in five equal installments over five years starting the date of possession.

2. Education loans

The government has upped its efforts to promulgate higher education, a move that has prompted many to move to other countries. However, a few courses overseas have always been expensive. This is where an educational loan becomes such an important tool for an individual aspiring to scale new academic heights towards a better future. But, should you want to claim tax deductions on the educational loan, you must avail the same from a scheduled bank / notified institution.

Section 80E of the IT Act states that only the interest payable towards the repayment of the education loan is eligible for deduction and not the principal. Tax benefits can be claimed for either a maximum of eight years or the whole tenure of the loan, whichever is less. For instance, if you can repay the entire loan within a period of five years, the deduction will be limited to as many years.

Benefits of Home Loan EMI Calculator

3. Personal loans

Unlike other loans, a personal loan is unsecured in nature and can be availed easily, for a variety of reasons ranging from medical emergencies to shelling out vacation expenses.

Usually, neither the principal nor the interest payable towards a personal loan is eligible for tax benefits. But only will a deduction be applicable should you utilize the loan to renovate your house or pay a lump-sum down-payment towards your home loan. Read this, for the better understanding of personal loan tax exemptions.

If planned wisely, a loan can contribute towards a better financial plan for you. You can also check out all the pre-approved offers on the loan you wish to avail from Bajaj Finserv by sharing a few basic details. Pre-approved offers simplify the loan application process.

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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The material contained in this site and on associated web pages is general information and it is not intended to be advice on any particular matter. Subscribers and users should seek professional advice before acting on the basis of the information contained herein. The decision with respect to any financial product or opportunity or nature or suitability or choice or the viability of any product or service shall always be sole responsibility and decision of the subscriber and user.

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