There is no denying that fact that instant personal loans have emerged as one of the key financial tools. It can help people face all cash crunches with elan. As per the personal loan eligibility, you can get up to Rs.25 lakh to cover needs and desires.
You can use a personal loan to pay for expenses such as an upcoming wedding, business expansion, higher education, medical emergency and more. The benefit of applying for a personal loan is that it is processed and approved quickly. As a result, you get the money disbursed to start managing your requirements instantly.
It is because a personal loan is an unsecured in nature which means borrowers don’t need to submit any security as the collateral to acquire the loan. The loan is offered as per your Credit Score, repayment and income history. Thus, it attracts a higher than normal interest rate compared with other secured loans.
Other than being one of the ‘go to’ funds raising options, a borrower applying for it can lap up some personal loan tax benefits as well.
If you are unaware of the personal loan tax benefits, then here are some situations under which you may claim tax benefits. Read on and explore more!
A quick look at some personal loan tax benefits
When it comes to the Indian Income Tax Act, there is no mention of any special deductions for personal loans, but other loans such as home loans and more. But, that does not mean that you can’t avail tax benefits under it.
Since the Income Tax Act has no mention about the personal loan taxes, the reason for which the loan money was used will be considered for tax deductions.
Hence, a borrower can enjoy personal loan tax benefits only when the loan money was utilized for some situations or events. Here is a quick look at some such situations under which the personal loan tax benefits are allowed:
Situation 1 – Investment in business
Anyone who has used his/her personal loan amount and invested in business can claim the interest paid on it as an expense. It will bring down the overall tax liability and also net taxable business profits that he/she has invested in. There is no cap on the amount that you can claim under this.
Situation 2 – investment for the construction and purchase of the property
You can also avail personal loan tax benefits if you have used the loan money for the construction or the purchase of a residential property. A borrower can enjoy tax benefits for interest repayment for the same under Section 24 of the Income Tax Act. The maximum amount that can be considered as tax deductions is Rs.2 lakh for a self-occupied home. For a house rented to anyone else, there is no cap. The only thing is that borrower needs to be the homeowner to avail the tax benefits.
Additionally, you can also claim personal loan tax benefits for using the loan amount for purchasing some assets. Such assets could be jewellery, shares, non-residential property, some kinds of stocks and more. However, the tax deductions are allowed only in the year in which they sell off such assets.
You should also know that the personal loan tax benefits will only be applicable on the interest amount and not the principal loan amount.
If you have used the personal loan for situations and purposes other than the listed reasons, then you won’t get any personal loan tax benefits.
Many leading lenders offers pre-approved deals on personal loans, home loans, business loans, EMI finance and credit cards and others. Such deals can help you simplify the overall loan processes and make it fast.