A personal loan can help you immensely when you need urgent finances. Be it tackling a medical emergency, paying for your wedding expenses, planning a dream vacation, or renovating your home. A personal loan can help you meet your various financial requirements in a hassle-free manner. Since personal loans are multi-purpose loans, there are no restrictions on their end-use.
In addition, a personal loan has several other benefits, including
Remember that a personal loan is not considered a part of your income, and hence, you don’t have to pay any income tax upon availing of the loan. However, this applies only if you borrow a personal loan from a recognised bank or non-banking financial corporation (NBFC). Personal loans from friends, relatives, or any unrecognised entity may be taxed as income.
ALSO READ :- Check Your CIBIL Score to Get Personal Loan...!
Personal loans do not qualify for tax benefits. It’s because personal loans are unsecured loans and are usually considered for optional expenses. Unlike home loans, education loans, and business loans, the Income Tax Act of India doesn’t have any special provisions for providing personal loan tax exemptions on both principal and interest components. Due to the lack of any direct mention of personal loan tax exemptions in the Income Tax Act, the end use of the loan amount decides whether you can get tax benefits on personal loans or not. Below are a few ways in which you can use your personal loan amount to avail of tax benefits on a personal loan:
If you use your personal loan to purchase or construct a housing property, you can avail of certain tax benefits under section 24 of the Income Tax Act. Under this section, any amount paid towards the interest component of a loan used for the purchase, reconstruction, or renovation of a housing property is eligible for tax deductions. However, it’s important to note that this personal loan tax exemption is available only if you use your personal loan for the renovation or reconstruction of self-occupied housing properties. Suppose you’re using it for a rented property. In that case, your rental income shall be reduced from the amount paid as interest on your personal loan, and tax deductions would be calculated accordingly. To avail of tax benefits on a personal loan under section 24, you need to keep all relevant documents that can prove how you’ve used your loan amount.
You can avail of a personal loan and use it to grow or expand your business. From purchasing raw materials and equipment to upgrading your business infrastructure to managing your day-to-day business operations, you can use your personal loan amount to meet all your business-related financial requirements. Doing so can also help you receive tax benefits on your personal loan. You can claim the interest paid towards your personal loan as a tax-deductible business expense. There is no limit on the amount that you can claim for tax deductions in this case.
Besides using your personal loan to renovate your home and expand your business, you can also use it to purchase certain assets such as gold, jewellery, car, two-wheeler, etc., to receive tax benefits. The amount you use for these purposes will be considered asset acquisition costs, and you can claim them as tax deductions when you sell your assets. Here, the acquisition costs reduce your capital gains and, in turn, your overall income tax liability. However, you can claim tax benefits on personal loans used for asset acquisition only in the year you sell your assets.
Using a personal loan to pay for your higher education can fetch you tax benefits under section 80E of the Income Tax Act. Under this section, any amount paid towards the interest component of a loan used for funding higher education for yourself, your spouse, or your children is eligible for tax deductions. The maximum deduction allowed under this section is Rs. 1.5 lakhs in a given financial year. This benefit is over and above the deductions that you can claim if you are a student’s legal guardian and have taken a loan for his/her studies. As you can see, personal loan tax exemptions are applicable only on the repayment of the interest component and not on the principal component. In case you use your personal loan for any purpose other than the ones mentioned above, you won’t be able to claim any tax benefits on your personal loan.
Now that you’re clear about how you can use your personal loan to get tax benefits, let’s discuss how you can apply for a personal loan.
A personal loan can be a great option to handle an urgent financial requirement or plan an event. You can also get personal loan tax exemptions wisely by using your loan amount. With Poonawalla Fincorp, you can avail of a gamut of loans including personal loans, home loans, and business loans at competitive interest rates and easy eligibility criteria. You can browse through our loan products and choose the one that’s best suited to your requirements.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Personal Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply
How magical was the day when you discovered your career path? After a lot of research, putting in so much hard work, late nights, your heart and soul, you have become what you are today.