What are the tax exemptions on personal loans?
While it is rare to enjoy tax benefits through a personal loan, it isn’t impossible. Here is all you need to know.
Personal loan tax basics
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.
If you’re considering borrowing a personal loan, check personal loan interest rates and calculate EMIs using our Bajaj Finserv EMI Calculator before applying.