Personal Loans are an excellent source of credit, particularly if you don’t have access to easy collateral. Since you don’t need any security or collateral to apply for a Personal Loan, you can apply for one easily. The application process is easy and can be done online instantly too, in the case of digital Personal Loans. But this also means that Personal Loans charge a higher interest rate than other secured loans. However, depending on how you use your loan, you might be able to claim Personal Loan tax benefits as well as income tax exemption on Personal Loan. Let us see how.
Personal Loan tax benefit
There is no specific rule for tax exemption when you avail a Personal Loan. But since there is no restriction on the end-use of a Personal Loan, you can claim tax exemption on personal loan depending on how you use it. The only condition is that you should be able to provide evidence for the purpose that you have used the loan for. Hence, make sure you save all receipts for the expenses incurred and other documents to show the utilisation of funds, while filing your income tax returns.
Claiming tax benefits on personal loans is not as straightforward as tax benefits on investments or Home Loans or Education Loans. You need to go through the fine print. Depending on the utlisation of funds of Personal Loan, you may be able to claim tax benefit on Personal Loan. Please note, however, that if you take a Personal Loan for consumption purposes, like a vacation or buying a high-end mobile phone, you might not be able to claim benefits.
Methods to claim tax benefits on Personal Loan
Some of the ways you can claim tax benefits on Personal Loan include:
1. Benefits on interest payments
Tax benefits can be claimed on the interest paid for a Personal Loan as per Section 24(b) of the Income tax Act. For instance, if the Personal Loan is utilised for home renovation, deductions of up to Rs 30,000 per year on the interest paid can be claimed. Likewise, using a Personal Loan for higher studies abroad allows for deductions on the entire interest amount.
Also Read:Low-interest Personal Loans: beginner's guide
2. Use of funds for business purposes
Under Section 36(1)(iii) of the Income Tax Act, you are eligible for deductions in the interest paid for a Personal Loan when the funds are used for business needs. For instance purchasing specialised equipment or stocking inventory allows you to claim deductions against your business income, easing the tax burden on your business. Also, there is no maximum limit; you can claim deduction for the entire interest amount used for business purposes.
3. Benefits on property addition or renovation
Specialised loans such as Home Loans are meant for buying property. They involve long repayment periods and pledging of the property as collateral. If a Home Loan doesn’t work for your, a Personal Loan could be the right choice.
Personal Loans are good for paying for changes or extra additions to your home. According to Section 24(b) of the Income Tax Act, you can enjoy tax exemptions on the interest payment if you use a Personal Loan for repairing your existing house or for purchasing a home.
For example, if you want to repair the terrace of your house or add a room, you can claim exemptions on income tax exemption on Personal Loan, on the interest repayment. If you own the house you’re renovating, you can get up to ₹2 lakh per year.
Summing Up
Opportunities are within reach; you just have to explore the right avenues. Axis Bank Personal Loans offer flexible repayment plans and competitive interest rates. Utilise the Personal Loan Calculator to easily check your eligibilty and easily check your eligibility and estimate payment options.
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
