Factors On Which One Can Claim Tax Benefits While Availing A Personal Loan

Tax Benefits

Tax benefits are something, which can work in your favour and help you save more money. When it comes to availing a personal loan, there are tax benefits from that too. First, let us understand the basic tax slab for the financial year 2019-20.

Annual Income Range Tax Rate
Up to Rs. 2.5 lakhs No Tax
Above Rs. 2.5 lakhs to Rs. 5 lakhs 5% + 4% cess
Above Rs. 5 lakhs to Rs. 10 lakhs 20% + 4% cess
Above Rs. 10 lakhs to Rs. 50 lakhs 30% + 4% cess
Above Rs. 50 lakhs to Rs. 1 crore 30% + 10% surcharge + 4% cess
Above Rs. 1 crore 30% +15% surcharge + 4% cess

When you plan to avail a personal loan the Indian tax law has allowed certain benefits on the repayment of loans. This means that you as a borrower can claim tax benefits on a personal loan. However, it is important to note that under the Indian Income Tax Act, there are no specific sections mentioning tax benefits on a personal loan. Instead, the purpose of the personal loan is taken into consideration for tax benefits. If there are any tax benefits on the purpose you have taken a personal loan for, only then you can claim the benefits.

Purposes for which you can claim tax benefits:

1.Section 80C – Personal Loan for Home Improvement

Under this section, an individual can claim for a deduction of up to Rs 1, 50,000. The principal amount of the personal loan, which you have taken for home improvement, is eligible for deduction under Section 80C of the Income Tax Act.

2.Personal Loan For Business Purpose

If you avail a personal loan, whose proceeds will be used as an investment for your business, then the interest, which you pay on the loan, is eligible for a tax deduction. This helps in reducing the net taxable profits of your business, which in turn reduce the tax liability.

3.Personal Loan For Purchase Or Construction Of A Residential Property

If you avail a personal loan for the construction of a residential property or to purchase a residential property, then the proceeds can be claimed for tax deductions under Section 24. The maximum amount allowed for deduction is Rs 2,00,000 if the property is self-occupied. There is no maximum limit if the property is deemed as a let-out or is on rent.

4.Personal Loan For Purchase Of Any Other Asset

When you avail a personal loan online to purchase an asset such as shares, jewellery, non-residential property, etc, then the interest paid on the loan can be to the cost acquisition of the asset. This reduced the capital gains on the asset when it is sold.

Please note:

  1. A personal loan is not taxable as the amount received is not a part of your income.
  2. If you want to claim tax on the personal loan interest paid, then you need to provide adequate proof to the income tax department to support your claim.
  3. You need to keep all the following documents ready when you claim a tax benefit on the loan
    • Sanction Letter
    • Expense Vouchers
    • Auditor’s Report
    • Bank Certificate

Availing a personal loan can help you reap some tax benefits. Indiabulls Dhani provides unsecured personal loan, which you can use for any purpose. You can apply for a personal loan through our website or the mobile app. To know the estimated amount of your EMIs you can use the personal loan calculator.

Apply For Instant Personal Loan Online

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