Are Personal Loans Taken as Tax Exemptions?

0
437
Personal Loans

A personal loan is an unsecured or collateral-free loan offered by banks and credit institutions that borrowers may use for meeting various personal needs. Today, personal loans are widely regarded as a convenient way to pay for large expenses. However, not many are aware of the tax benefits that can be claimed under a personal loan. 

Read on to find out how personal loans can be used for tax exemptions in India and how you may benefit from this. 

How can personal loans be used for tax deductions?

Personal loans, in themselves, are not taxable since the loan amount is not considered a part of your income. However, this is only applicable when you take out the loan from a bank or recognized Non-Banking Financial Company (NBFC).

Therefore, if you’re looking for guaranteed personal loans Canada or in the US, or else want to know how to get a speedy personal loan, it is always advised to visit the website of a licensed and registered lender like lendforall.ca that can not only provide secured loans, but guide you through the entire process, from application till approval.

Unlike tax deductions for particular types of loan such as an education loan or home loan, the Indian Income Tax Act does not categorically mention special deductions for personal loans. All the same, this does not mean tax benefits cannot be availed on a personal loan. Whether or not you can claim tax benefits is largely determined by the end use of the personal loan funds. 

You could claim tax benefits in the following cases: 

  • Purchasing or Constructing a Home: One of the ways that personal loans can be used for tax exemption in India is by using the loan funds to purchase or construct a residential property. In India, you can claim a tax deduction on the interest paid up to a certain limit. Under Section 24(b) of the Income Tax Act 1961, the house owner can claim a tax deduction of up to Rs.2 Lakhs in a financial year. This means, if you apply for personal loan to purchase or construct a house, you may claim a tax deduction on the repayment of interest.
  • Business Investment: If you obtain a personal loan and invest the money in setting up or expanding a business, the interest paid on the loan could be claimed as a business expense, reducing your overall tax liability.
  • Purchase of an Asset: You may also avail a tax deduction on your personal loan if you use the money from the loan on purchasing assets such as gold jewelry, 2-wheelers or 4-wheelers, shares/stocks, or a non-residential property. The borrower could, in such cases, claim tax benefits by adding the interest component of the loan to the cost of acquisition of the asset which can help in reducing the capital gains of selling the asset.

It must be noted that tax benefits on a personal loan can only be claimed on the interest amount, not the principal loan amount. Furthermore, no tax benefits can be availed on a personal loan if it is taken out for a reason other than the above-mentioned reasons.

Typically marked by simple documentation and swift processing, personal loan is a great way to pay for large purchases. If you are planning to apply for a personal loan, you could consider consulting a tax professional to find out more about getting tax exemptions on your personal loan.

loan from IndusInd Bank

Get an instant personal loan from IndusInd Bank, which offers personal loans at one of the lowest interest rates, starting from 10.49%. 

Read Also: 8 Benefits of Investment for Your Retirement