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. Moreover, 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 borrowers. Read on to know more.
1. Home loans
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. It means that 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 borrowers. Read on to know more. 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 subject to deduction in the 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 be considered ‘self-occupied.’ The others will all be deemed ‘rented out’, even if they’re not. Earlier, the whole home loan 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 can get a 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, which 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 education loan repayment is eligible for deduction and not the principal. You can claim tax benefits 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 five years, the deduction will be limited to as many years.
3. Personal loans
Unlike other loans, a personal loan is unsecured in nature and can be availed easily for various 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 a 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.
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