Do you wish to borrow money to fund your wedding or you are planning to take a vacation trip but don’t know how to go about it? In such cases, you can consider applying for a personal loan. Personal loans come with easy eligibility conditions and are easy to apply for. Many people are also unaware that personal loans have an additional benefit in that they can provide tax benefits.
Are you planning to apply for a personal loan but asking yourself the question - is personal loan taxable? Or are you paying EMIs and wondering if you could avail a tax benefit on personal loans?
Here’s all that you should know about the tax benefits on personal loans.
Although personal loans are not defined under the Indian Income Tax Act, they can be deducted from your taxable income. In case you have taken a personal loan, you can avail tax benefits only if this personal loan is used under certain conditions. .
The three circumstances in which a personal loan qualifies for tax benefits are -
Business Investment
Borrowing money to invest in a business is common practice. If you have availed a personal loan to invest in your business and have repaid the same, the interest paid on that personal loan can be claimed as an expense by the borrower.
This reduces the borrower's tax liability as well as the net taxable profits of the business in which they have invested. This is available to all small businesses, whether incorporated or not.
Investment on Purchase or Construct Residential Properties
Personal loans for house construction can be claimed as an expense. If a person has taken a loan to build his/her own house, then the interest can be claimed as an expense. This is under Section 24 of the Income Tax Act and is applicable even for home renovation.
You should bear in mind that to avail tax benefits on personal loans, you should be the owner of the property. You can claim the interest on such a loan as an expense, provided that you have taken it and paid it out of your own pocket. However, if you have availed such a loan through any other source like your parents or relatives, then you cannot claim the interest as an expense.
Investment in Assets
In cases when a borrower makes use of their personal loan eligibility for purchasing assets such as jewelry, non-residential property, shares and stocks, the interest paid on the personal loan qualifies for deduction under Section 80C. This is one of the options employed by investors to reduce their tax liability. The borrower will have to add this amount to the cost of acquisition when claiming tax benefits in future years.
While personal loan is not taxable, personal loan tax exemption is definitely possible. However, this depends on what the personal loan is being used for. As mentioned above, there are three scenarios wherein tax benefits on personal loans can be claimed. Therefore, as a borrower, you can make the most of these deductions. If you are looking for a personal loan with minimal documentation that is disbursed within 24 hours of application approval, visit the Money View website or download the app to apply today.
Under 80C, a personal loan taken for home renovation, purchase, or construction is eligible for a tax benefit of up to Rs. 1.5 lakh in a financial year. A personal loan in itself has no tax benefits. Its end use can, however, help you save on tax.
There are no tax benefits for personal loan repayment. However, the interest paid on the loan can be claimed as a deduction under section 24(b) if the amount borrowed has been used solely for the purchase, construction, or repairs renovation of your home.
Section 37(10) allows taxpayers to claim deductions if the personal loan is used for business purposes.
Yes. Self-employed or salaried individuals can furnish their ITR as proof of income to avail a loan.
Individuals can enjoy tax deductions for the following loans
No. Personal loan for marriage is not exempted from tax.
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