Tax Savings

How Can You Avail Tax Benefits On Personal Loan In India


Personal loans are one easy way to fulfill financial emergencies. For instance, they are helpful if you have a medical emergency. Also, they come in handy when you need to fund your higher education or weddings. These loans are unsecured. So they have a high rate of interest.

But personal loans are easy to get. And this is why they are ideal in many scenarios. Currently, there are no tax benefits when you get a personal loan since they aren’t taxable. Also, since they aren’t a part of your income or salary structure, you can’t file returns on them.

However, there are some ways you can avail of them. If you or any family member is getting a personal loan, make sure they are aware of this. Let us learn how you can get tax benefits on a personal loan.

Ways to Enjoy Tax Benefits on Personal Loan

If you apply for a personal loan, here is something we would like to share. Individuals planning to get a personal loan often wonder if there are any tax benefits. Well, there is some good news for you. You can get tax deductions in certain scenarios. Not many are aware of this benefit. So let us have a look at them. Below are some cases under which a personal loan will offer tax benefits. You can avail of tax benefits if your personal loan fund is for:

  1. Education Costs: In case you apply for personal loan to cover education costs, you can claim tax deductions. This is under Section 80E of the Income Tax Act. But the benefit is not available on the principal amount. It is only applicable to interest payments. Also, there is no fixed upper limit that you can claim.
  2. Business Purposes: Startup owners usually prefer getting personal loans. This is because business loans are tough to get. Personal loans are approved faster. If you use the amount for business purposes, the interest on the loan amount is considered a business expense. This amount is cut from the net profit. So the taxable income is low.
  3. Asset Purchase: The next way you can enjoy tax benefits on a personal loan is if you use the amount to buy an asset. For example, if you use the loan to buy jewellery, shares, or property, the interest is added to the acquisition amount. If you know, you reduce the acquisition cost from the selling price to calculate the taxable capital gains. So, the tax liability is low. There is amazing news for people who bought properties between April 2014-March 2015. Such individuals can get a tax benefit on registration and stamp duty. This is the amount that they paid during acquiring the property. The deduction has a maximum limit of up to Rs.1,50,000.
  4. Home Improvement: Avail tax benefits on personal loans if you use the amount to make down payments for the property. For instance, if the house is under construction and you need to move within 3 years, you can claim deductions. But you can do so only after the construction is complete. You can get refunds for repairs and renovations too.

Now that you know how to enjoy tax benefits, you can make the best use of personal loans. You can get the loan processed almost instantly with less paperwork. Besides, they are the best form of emergency funds. You can use them for a variety of purposes.

Important Factors To Know Regarding Tax Benefits on Personal Loan

  • When you receive the amount through a personal loan, there is no tax as the fund is a loan and not income.
  • To enjoy tax benefits on a personal loan, you should have all the necessary documents. Make sure you have enough copies of every detail. This includes the loan amount, interest, and other documents. Without these documents, you will not be able to process the tax benefit.
  • You need to show proper proof that the amount came from a personal loan. Also, you should show that the amount is used for any of the above-mentioned points. Only if you use the personal loan for listed points can you claim a tax deduction.
  • As per the latest rules of the government, it allows tax benefits on loans meant for residential properties. You can get the benefits on interest and not the principal loan amount.

The Bottom Line

Tax deductions on personal loans are available. But you need to know under what category can you avail of tax benefits. It is best to do some research online on reputable finance websites. Visit the Piramal Finance website to understand how personal loans and tax benefits work. They have detailed information on the subject.

Also, ensure you have the right documents to prove how you will use the loan amount. This is how you can enjoy tax benefits on a personal loan. If you use the amount for other purposes, you will not be able to get tax benefits. Here is how you can take advantage of personal loans and save your money!