While it is rare to enjoy tax benefits through a personal loan, it isn’t impossible. Here is all you need to know.
Tax benefits on personal loan
Borrow a personal loan from a credible source. If the source of funds doesn’t seem legitimate, tax authorities may view the loan as your income and tax you on it. For this reason alone, borrow from Bajaj Finserv. Get ample funds and benefit from simple personal loan eligibility criteria.
As per India’s Income Tax Act, 1961, personal loans are eligible for tax exemptions or deductions under section 80C depending on how you use the funds. Here are some scenarios that help you lower your tax outgo.
- 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.
Frequently Asked Questions:
No, personal loans are not covered under Section 80C of the Income Tax Act in India. Section 80C provides deductions for specific investments and expenses like life insurance premiums, PPF, and tuition fees. Personal loans do not qualify for tax benefits under this section.
You generally cannot claim tax relief on personal loan interest. Personal loans are typically not eligible for tax deductions or benefits, as they are considered for personal use and not investments or expenses that qualify for tax relief.
Some lenders accept Income Tax Returns (ITR) as proof of income for a personal loan. Lenders often require ITR documents to assess your income stability and creditworthiness.
Home loans and education loans are commonly eligible for income tax exemptions. Interest paid on these loans may qualify for deductions under specific sections of tax laws. However, personal loans generally do not qualify for such exemptions.
There is no tax rebate on personal loan in most cases. Interest paid on personal loans is generally not eligible for tax deductions. Tax benefits are usually associated with specific loans like home loans or education loans, subject to respective tax laws.
Interest on a loan is generally not taxable as income for the borrower. However, there are exceptions, such as interest earned on savings bonds or certain types of investments. Additionally, interest paid on some loans, like home loans or education loans, may be eligible for tax deductions, subject to local tax laws.
To save tax on a loan, consider loans with eligible tax benefits, like home loans or education loans. Interest paid on these loans may be deductible. Ensure compliance with local tax laws, maintain proper documentation, and consult a tax professional for advice on maximising tax savings based on your specific circumstances.
Personal loan interest is generally not tax-deductible in most cases. Unlike certain loans like home loans or education loans that offer tax benefits, personal loans are usually not eligible for tax deductions on the interest paid. Tax regulations may vary, so it's advisable to consult a tax professional to get the real time information.