Tax Benefits of Different Loan Types in India

Under the Income Tax Act’s Old Tax Regime, loans such as education loans, home loans, car loans and personal loans offer attractive tax benefits subject to certain conditions. Understanding them can help you plan your finances better and reduce your overall financial liability. Continue reading to learn more about the tax benefits of different loan types in India.

Education Loan Tax Benefits

As a borrower, you can claim a deduction on the interest paid on an Education Loan under Section 80E of the Income Tax Act. Here are its related specifications:

●    The deduction can be claimed for up to eight consecutive years from the year that the loan repayment starts, or until the interest is fully paid, whichever comes first.
●    There is no limit to the deduction amount.
●    Only the interest on the loan amount would be applicable, and not the principal repayment.

An additional change was introduced that’s beneficial for overseas education: the Union Budget 2025 raised the TCS (Tax Collected at Source) threshold on foreign remittances under LRS (Liberalised Remittance Scheme) from INR 7 Lakh to INR 10 Lakh. This means you only have to pay the TCS on amounts exceeding INR 10 Lakh when you send money abroad.

It also removed TCS on education remittances when the funds are routed through loans from specified financial institutions. Other foreign remittances attract a 5% TCS above the INR 10 Lakh ceiling under the new provisions.

Also Read: Section 80E Income Tax: Tax Benefits on Education Loan Interest

Home Loan Tax Benefits

Home loans are necessary for the majority of potential buyers, and the Income Tax Act provides ways to reduce the repayment burden. 

As per the Income Tax Department, for a housing loan:

●    Section 24(b): For a self-occupied property, a deduction on interest up to INR 2 Lakh is allowed, provided acquisition or construction of the house is completed within five years. In the case of let-out properties, the entire interest is deductible, although set-off against other income is restricted to INR 2 Lakh per annum; any balance that remains unclaimed can be carried forward for up to eight years.

●    Section 80C: You can claim a deduction on the principal repayment of a home loan up to INR 1.5 Lakh per annum, within the overall 80C limit. This includes stamp duty and registration charges within the year in which they’re paid. The deduction under this section can be claimed only after possession or completion of the home, provided that the property is not transferred within five years.

●    Section 80EE: First-time home buyers who availed a loan between 1 April 2016 and 31 March 2017 were eligible for an additional deduction of up to INR 50,000 on interest, provided the loan amount availed was not over INR 35 Lakh and the property value was not over INR 50 Lakh. Eligible borrowers can keep claiming this deduction.

●    Section 80EEA: Individuals not eligible for the Section 80EE deduction can claim deductions up to INR 1.5 Lakh provided their home loan was sanctioned between April 1, 2019, and March 31, 2022. This is provided the stamp duty value is below INR 45 Lakhs, and the individual doesn’t own any residential house property on the date of the loan sanction. This deduction can be claimed alongside Section 24(b).

Also Read: Different Types of Mortgage Loans in India

Tax Benefits for Car Loans

Car loans for petrol and diesel vehicles do not offer tax benefits for individuals, but deductions can be claimed if the purchase was made for a business. Additionally, certain benefits were made available for electric vehicle loans; here are more details on the same:

●    Business Expense: As a self-employed individual or as a business owner, you need to show the purchase of the car as a business expense in your books, treating it like a depreciating asset. This will enable you to claim a deduction on the loan’s interest amount.
For instance, if your car costs INR 25 Lakh, your one-year loan amount is INR 20 Lakh at 12%, and taxable business profit is INR 50 Lakh. The amount you can deduct from this taxable profit is INR 2.4 Lakh (12% of INR 20 Lakh).

●    Section 80EEB: For loans sanctioned between 1 April 2019 and 31 March 2023, this section offered a deduction of up to INR 1.5 Lakh per year on the interest accrued on loans for electric vehicles. Borrowers having loans from that period can continue to claim the deduction.

●    Section 32: Claiming depreciation is allowed on cars used for business at the rate of 15% on a written-down value basis. If the car is used for less than 180 days in the year of purchase, the depreciation will be restricted to 7.5% for that year. Note that this strictly applies to business and professional usage; trying to claim this deduction otherwise is illegal and risks imprisonment or steep fines.

Also Read: How to Get a Used Car Loan for a Great Rate?

Personal Loan Tax Benefits

Personal loans are generally considered more flexible and can be used for different purposes. While these loans do not give direct tax benefits, some relief on tax may be given depending on the usage of funds.

●    For home renovations: If used for repairs or renovations of a house, interest can be claimed as a deduction under Section 24(b). In the case of a self-occupied property, the deduction on interest for housing loans is restricted under the various conditions stipulated in Section 24(b) to either INR 2 Lakh or INR 30,000 per annum.

●    For home purchase or construction: Under Section 80C, you can claim deductions up to INR 1.5 Lakh for a Personal Loan taken for the purchase or construction of a home, provided you intend on living there yourself and construction is done within 5 years of taking the loan. The entire interest amount is eligible for deduction if you plan on renting it out.

●    For business purposes: Interest on capital borrowed for business shall be allowed as a deductible expense under section 36(1)(iii), provided the funds are used for the business, which can be clearly established via required proof.

Interest incurred for wedding expenses, holidays, or personal consumption cannot be granted any deductions. 

As of August 2025, the RBI kept the repo rate unchanged at 5.50%, and it is predicted to remain stable for the near future. This would help you plan your deductions and loan tenures accordingly; for instance, most deductions are no longer applicable under the New Tax Regime, leading to most borrowers paying off their loans earlier. If you’re still opting for the Old Regime, this stable interest rate can help with your finance calculations.

To Conclude

These tax deductions can be claimed provided you meet the eligibility and opt for the Old Tax Regime. Review repayments and tax treatment of the loan very carefully before making any decisions to prepay or retain your loan. 

Choose Poonawalla Fincorp’s range of lending solutions to avail of a loan with a competitive interest rate and flexible tenure. Apply today!

Frequently Asked Questions

Can tax benefits be claimed on the principal repayment of an Education Loan?
No, in the case of Section 80E, tax benefits apply only on the interest paid on an Education Loan and not on principal repayment.

For how long can one claim deductions under Section 80E for education loans?
Deductions can be claimed for a period of eight consecutive years beginning from the year in which the loan payment begins, or up until the loan is repaid, whichever is earlier.

Are overseas education loans exempted from TCS? 
Yes. In Budget 2025, education remittances funded through loans were exempted from TCS, while other education-related remittances attract TCS at a rate of 5% if they exceed INR 10 Lakh in a financial year.

What is the maximum deduction allowed under Section 24(b) for home loans?
For a self-occupied property, you can claim a maximum of INR 2 Lakh per year on interest paid. For let-out properties, the entire interest is deductible but set off against other income is restricted to INR 2 Lakh.

Is Section 80EEA still available for first-time homebuyers?
No, Section 80EEA was applicable only for loans sanctioned up to 31 March 2022. It is no longer available for new borrowers.

Can I claim tax benefits on car loans for petrol or diesel vehicles?
No, there are no deductions for car loans taken for petrol or diesel vehicles unless they were purchased for business purposes only. The benefits apply only to electric vehicle loans sanctioned under Section 80EEB within a specific period.

What were the conditions under Section 80EEB for electric vehicle loans?
Section 80EEB allowed a deduction of up to INR 1.5 Lakh on interest for loans sanctioned between 1 April 2019 and 31 March 2023. Borrowers with eligible loans can continue to claim the benefit until the loan tenure ends.

Can I claim tax benefits on a Personal Loan used for weddings or travel?
No, personal loans used for weddings, holidays, or other personal expenses do not qualify for any tax deduction. Tax benefits apply only if the loan is used for housing or business purposes.

What is the deduction limit for personal loans used for home renovation?
If a personal loan is used for home repair or renovation, interest can be claimed under Section 24(b). For self-occupied property, the deduction is capped at INR 30,000 per year.

Can I deduct interest on personal loans used for business purposes?
Yes, under Section 36(1)(iii), interest on a Personal Loan used for business is deductible as a business expense. You must be able to demonstrate that the funds were used for business activities by submitting required documentation.