Tax Benefits on Personal Loan And How To Claim It

While personal loans generally do not offer any tax benefit on a personal loan, there are limited scenarios where specific expenses may be treated differently under tax laws. Here is all you need to know.

Tax benefits on personal loan
 

Personal loans do not offer direct tax benefits. However, tax deductions may be available depending on how the loan amount is used. If the funds are used for home-related expenses, education, or business purposes, the interest paid may be eligible for tax deduction as per applicable income tax rules.
 

For personal expenses such as travel, shopping, weddings, or lifestyle spending, no tax benefits are available.

Note: Tax benefits depend on current income tax laws and may change. It is advisable to consult a tax expert for accurate guidance.

• For purchase or construction of residential property: As per Section 24 (b) of the IT Act, you enjoy tax deductions if you use a personal loan to buy or construct a residential property. While there is no limit for a home that is put on rent, for a self-occupied property, the deduction limit is Rs. 2 lakh.
• For business expansion: You can use a personal loan to finance business expansion to increase revenue. Here, you can claim the interest you pay towards the loan as a tax-deductible expense.
• Buying other assets: Purchasing certain assets such as jewellery through a personal loan offers tax benefits. The interest that you pay on this loan is considered the cost of asset acquisition. You can claim tax benefits as and when you sell the asset. Here, the cost of acquisition reduces capital gains.
• Home Improvement: Utilise energy-efficient home improvement credits. Leverage mortgage interest deductions for qualified home improvements. Take advantage of property tax deductions related to home upgrades.
• Education Expenses: Claim tax credits for qualified education expenses. You can explore education-related deductions for tuition and fees. Consider education savings plans for tax advantages.

If you’re considering borrowing a personal loan, check personal loan interest rates and calculate EMIs using our Bajaj Finserv personal loan EMI calculator before applying.

To claim tax benefits on a personal loan, you should keep clear records that show how the borrowed amount was used and proof of repayment. These documents help support your claim during tax filing or verification.

Commonly required documents include:

• Loan approval letter and loan agreement
• Interest statement or certificate from the lender
• Bank statements showing EMI deductions
• Payment receipts, invoices, or bills related to the loan purpose
• Supporting documents based on usage, such as property papers, education fee receipts, or business expense records

Maintaining these documents ensures smooth tax filing and hassle-free verification.

• Assuming personal loans are tax-free by default without checking eligibility conditions.
• Claiming personal loan tax exemption without valid proof of end use or proper documents.
• Not maintaining bills, receipts, or interest certificates for verification.
• Mixing personal and business expenses, which may lead to claim rejection.
• Filing deductions under the wrong tax section or regime.