Tax Savings

Is There Any Tax Benefit On Personal Loan?


Getting a loan could be a good option if you need more funds to pay for significant life events. When it comes to events like a wedding or a vacation, you are always short on cash and need some more. In this kind of scenario, you can get a personal loan. Apart from being able to meet your urgent needs, tax benefits on personal loan are an added benefit.

The application process for a personal loan is simple, and only some basic rules must be satisfied. You will be making payments on a personal loan through EMIs. You might be thinking about getting a personal loan, but before you do, you should find out if there will be any tax implications.

Can you write off the interest you pay on a personal loan?

The Income Tax Act does not state any specific tax benefits on personal loan; but in fact, such loans are still eligible for tax benefits. You may qualify for tax benefits if you have a personal loan and use it right. There are three cases in which you could be eligible to get a personal loan tax deduction. Read on to learn more.

Interest Payment on Personal Loan Used for Business

When a firm wants to expand, loans are often used as a capital source. Your interest payments on a personal loan used to start your business can be claimed as tax benefit on personal loan.

This personal loan tax deduction is available to all small businesses that file their income tax returns on time.

Purchasing or developing a house as an investment

It is possible to deduct the interest paid on a personal loan used to improve your home as a tax benefit on personal loan. This is given in Section 24 of the Income Tax Act and applies to other home projects of a similar nature.

Keep in mind that the only person who may obtain tax benefits on personal loan is the property owner. If the interest on a loan you took out and repaid was paid from your funds, you could deduct those payments from your taxes. However, if you took out a loan from a non-bank lender, such as your parents or other relatives, you cannot claim the interest you paid on that loan.

Acquisition of things of value

Under Section 80C of the IT Act, the interest paid on a personal loan used to acquire goods such as jewellery, non-primary residences, enterprises, or stocks is valid for tax benefits on personal loan. This provision offers investors the potential to reduce the amount of revenue subject to taxation. The borrower must factor in this amount when figuring out the cost basis for future tax advantages.

Important Information About the Personal Loan Tax Deduction

Because the person receiving the money does not consider the money to be income but rather a loan, there is no need to pay income tax on it.

To be eligible for a deduction, there has to be proof that may satisfy the need to show that the money obtained via a personal loan was used for the given objective.

To claim income tax benefits for a personal loan, retain a copy of all key papers, including the amount of the loan obtained, the amount and interest that must be paid, and any other useful data.

Personal Loans for Tax Savings

Personal loans are eligible for tax exemptions as well. However, tax breaks are only available on rare occasions. The amount of the loan you can deduct from your taxes depends on how you intend to use the money. You may be able to use a personal loan to claim tax benefits in the following situations:

Home Remodeling

According to Section 80C of the Income Tax (IT) Act, a tax deduction for a personal loan used for home projects of up to Rs. 1.5 lakh can be claimed for each year. Hence, if you get a personal loan to fix up or rebuild your home, you may be eligible for a tax benefit on personal loan as a result of doing so.

Acquiring or building a home

Suppose you acquire a personal loan to buy or fix a home. In that case, you can deduct up to Rs. 2 lakhs of interest from your income, as per Sec. 24 of the IT Act. This allows you to reduce the tax you owe on your income. To avail of tax benefits on personal loan, you must own the property in question.

Investment in a business

If the loan funds are used to invest in a business, the interest component of the loan can be deducted as a business cost. This may help the business owner reduce net taxable earnings and, as a result, income tax liabilities.

Acquiring assets

Those profits may be exempt from taxation if the proceeds from a personal loan are used to purchase non-residential real estate, jewels, stocks, or shares. The interest on the loan may be included in the cost of acquiring the item. As such, the capital gains obtained from the asset’s sale are reduced.


Personal loans are not taxable, although they may help with tax deductions. That, however, depends on the goal of the personal loan. As previously stated, there are three scenarios in which tax benefits for personal loans can be claimed. As a result, as a borrower, you can avail of these tax benefits to reduce the cost of a loan for you. If you need a personal loan with minimal paperwork and a payout within a few hours of the process, visit Piramal Finance to get the best deals.