Personal loans are an excellent source of credit, particularly if you don’t have access to easy collateral. Although personal loan interest rates are higher than other secured loans, depending on how you use your loan, you might be able to claim tax benefits.
Methods to claim tax benefits on your loan
Claiming tax benefits on personal loans is not as straightforward as tax benefits on investments or home loans. You need to go through the fine print. Depending on your specific circumstance, mainly the reason pertaining to your need for a Personal Loan, you may be able to claim some benefits. Please note, however, that if you take a Personal Loan for consumption purposes, like a vacation, you might not be able to claim benefits.
Some Personal Loan tax benefits include:
1. Benefits on interest payments:
You can claim tax benefits on the interest paid on a Personal Loan, according to Section 24(b) of the Income Tax Act.
For example, if you use the Personal Loan amount for renovating your home, you can claim deductions up to ₹30,000 per year on the interest paid. Similarly, if you use the credit for your higher studies abroad, you can claim deductions on the entire interest amount!
2. Use of funds for business purposes:
According to Section 36(1) (iii) of the Income Tax Act, you can claim deductions on the interest payments on a Personal Loan if you use the funds for business purposes.
For example, if you use the money to buy specialised equipment for your business or stock up on inventory, you can claim deductions against your business income. This helps reduce your business's tax liability. Plus, there is no upper limit applicable here. You can claim deductions on the entire amount.
3. Benefits on property addition or renovation:
Specialised loans are meant for buying property. But most of these loans involve longer repayment tenures and require you to pledge the property as collateral.
If the conditions of a home loan are not suitable for you or if you feel like it is not the right loan for your requirements, you can always opt for a Personal Loan instead. Personal Loans are ideal for funding any renovation or addition to your house.
According to Section 24(b) of the Income Tax Act, you can claim exemptions on your interest payments if you use the Personal Loan amount to renovate or purchase a property.
For example, if you wish to renovate your terrace and construct a room on the roof, or if you wish to expand your house and build a garage, you can claim exemptions on your interest payments. If you own the house you’re renovating, you can claim up to ₹2 lakh per year. You can even claim the entire interest amount if you live in a rented house.
Also Read: [How to get a Rs. 5 Lakh Personal Loan?]
Summing Up
The opportunity is out there - you just need to look in the right places. Axis Bank Personal Loans offer flexible repayment options and competitive Personal Loan interest rates, ranging from 10.49% to 24% per year. You can check your Personal Loan eligibility and estimate your payment options using the Personal Loan EMI calculator.
Ensure you understand your personal loan's terms and conditions before choosing. If you’re unsure about the tax implications, you can contact Axis Bank experts to optimise your savings.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
