Sometimes, you just have to take a loan to make ends meet. But that doesn’t mean you cannot make a saving while doing so. Here are 4 such loans you can make significant tax savings on.
Much like others on the list, individuals have to take out a home loan in order to meet a basic necessity, shelter. Under section 80C of the IT act, you can avail of tax benefits of upto 1.5 lakhs on your home. Even the interest you pay on the home loan can be claimed through Section 24 of the IT act. In 2015, the government also launched the Pradhan Mantri Awas Yojana that was meant to provide housing for “all” by 2022. If you avail of a housing loan under the Pradhan Mantri Awas Yojana, you are eligible for deductions of upto 1.5 lakhs on the interest paid.
It is worth noting that while you cannot claim this tax benefit on any properties that are under construction if you wish to finance the purchase of a second home, a deduction claim of upto 5 lakhs per year can be made (contingent on you not selling the house for 5 years from the possession date). If you are a first-time homeowner, additional benefits upto 50,000 can be claimed under section 80EE.
A personal loan oftentimes referred to as a professional loan for those who are self-employed, is another way you can make some significant tax savings. The key to making tax savings on a personal loan/professional loan depends on where you are going to spend it. In other words, while there is no tax benefit for taking out a personal loan, if you were to use the personal loan to buy a house you could gain tax benefits under section 24 of the IT act, or if it were to fund your education, under Section 80E.
Owning a car is seen as a marker of independence and prosperity and many choose to take out a loan to purchase one. If you are self-employed, you can get tax benefits on the interest you pay for your car loan under section 43B of the IT act. It is worth noting however that you can only claim tax benefits on the interest payments you have to make, and not on the routine EMI payments. For instance, if you have an annual income of 15 lakhs and your interest payments on the car loan is 50,000, then only 14.5 lakhs of your income is taxable.
For many Indians, studying in a foreign university is a dream. For others, just attending a University is enough. Regardless, funding one’s education can be expensive and students often have to take out a loan. As education is a fundamental right, tax benefits have been made available for those who take out education loans, incentivizing more people to fund their education.
If you take out a loan for higher education, the interest payments you make on this loan can be claimed for deductions under Section 80E of the IT act. This facility is available from the time you begin making interest payments, and upto 7 years from this date (or until you repay the loan in full). If you take out a loan to attend a foreign university, you are eligible for a further benefit from the lower TCS (Tax Collected at Source).
Additionally, you can also claim upto 1.5 lakhs under section 80C on tuition fees paid, and this a separate deduction altogether which can be made in tandem with section 80E. For an education loan, tax benefits are limited to a maximum of 8 years.
Home loans have always been a popular means of financing the purchase of a house, still seen as a symbol of safety and prosperity. Owning a home is a dream for most, and you could consider the home loan offerings available on the Piramal Finance to take your next step towards being a homeowner.
However, home loans (loans of any kind) can be difficult to mandate, and in order to help mitigate some of this downside, however, the Income Tax Act has a number of provisions to provide citizens with relief in the form of tax benefits and deductions on loans that are taken out to purchase necessary goods and services.
[Also Read: Different Types of Business Loan ]