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Know ways to claim tax deductions on Personal Loan
Personal Loans are one of the easiest ways to raise money for various purposes. Whether you want to fund your higher education, deal with a medical emergency, or plan a dream wedding, a Personal Loan offers great respite. But have you ever wondered how Personal Loans could help in tax saving, and in what situations? Yes, you can enjoy tax benefits on a Personal Loan depending on how you use the funds from the loan. Read on to know about the specific expenses that can fetch you tax benefits on Personal Loans.
Here are some ways in which you can enjoy Personal Loan tax benefits in India
If you have taken a Personal Loan to buy a property or construct your own house, you can claim the interest payment as an expense and avail of tax benefits on the same. You can seek exemption of up to INR 2 Lakh on the interest repayment component under Section 24(b) of the Income Tax Act on resident or vacant properties. You need to own the property to avail the tax benefits on Personal Loans. If the house is rented, you can deduct the total interest paid on the loan from your taxable income.
You can also get a tax benefit on a Personal Loan if you use the funds to renovate or remodel your home with the loan amount. You may claim a deduction of up to INR 1.5 lakh under Section 80C of the IT Act based on the principal amount repaid in the financial year. Note that if you use up 80C tax deductions for some other investment, you can avail of it again on the Personal Loan.
If you decide to utilise the Personal Loan amount to invest in your business, you can claim tax benefit on the interest amount. This would reduce the burden on the total taxable income from your business. There is no maximum deduction on the total claim.
When you use the sanctioned amount to invest in an asset, you can claim Personal Loan tax benefits on it. These can be in the form of non-residential property, gold, stocks, or shares. However, you may not claim this deduction in the same year of interest payment but instead in the year of selling the asset purchased through the Personal Loan. At the time of resale, you can deduct the total cost of acquisition, including interest, under Section 48 of the IT Act.
Given that Personal Loans are collateral-free, getting funds for your specific needs is convenient and risk-free. To claim income tax benefits on a Personal Loan, always keep a copy of all essential documents handy as you would need proper evidence to be eligible to claim a deduction.
Download the digibank mobile app on your smartphone. Launch the app and click on the "Get Personal Loan" link on the login page. Also, you can open bank account online with us.
*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.
