How You can Take Advantage of Tax Benefits on Personal Loan.?
For most people, loans of any kind—such as auto loan or home loan—are a huge liability. The repayment of the loan amount often induces mental stress that refuses to go away until the loan is completely paid back.
However, many of us are simply unaware of the fact that some loans offer tax benefits.
According to The Act of Tax Benefit, 1961. One such loan on which customers can get tax benefits is the Personal Loan.
Though there have been changes in personal tax in the last five years, getting tax benefits on such loans is still possible, even easy.
What is a Personal Loan?
One of the easiest loans you can take from any financial institutions or bank is a Personal Loan.
Customers don’t have to provide too much detail to avail a Personal Loan. All you need is to supply some basic KYC information’s.
With a Personal Loan funding your ventures, you can undertake any financial task. These loans are considered unsecured loans for this reason.
A Personal Loan suits people who don’t have any kind of personal property to provide as security to avail loan. The interest to be paid on such loans will be higher than other loans. But it is worth remembering that, one need not provide any security to get the loan.
Getting this loan is even easier for salaried professionals. People who avail these loans won’t need to pay personal tax and get tax benefits. Read on to understand how.
Tips to Get Tax Benefits on Personal Loan
According to the Indian Act of Income Tax, there is no such specific deduction of tax on the interest. However, if you want to avail a deduction on the tax to be paid, you’ll need to provide the exact reason for why you need the personal loan.
The lender decides whether to give you the loan based on the reason you provide.
Here are some of the purposes for which an income tax deduction is allowed. If you use the amount you have taken as Personal Loan for any of the following purposes, you become eligible for subsequent tax benefits.
A Personal Loan for Business Purpose
If you have taken a Personal Loan for a business purpose, you become eligible for tax exemption. You will, however, need to provide documents regarding the business affair for which you will be using the money. There is no limit of the amount to be taken as Personal Loan in this particular case.
A Personal Loan for Construction, or to Purchase a House
According to Section 24 of the Indian Income Tax Act, Personal Loans for either the construction or purchase of a house falls under tax deduction scheme.
A Personal Loan taken to Purchase other Asset
When you take a Personal Loan to buy personal assets such as non-residential houses, shares, or jewellery, your loan becomes eligible for tax deductions.
The tax deduction in this kind of Personal Loan isn’t applicable during the tenure of the loan; Instead, it is added to the cost of acquisition. You will get the tax benefit when these personal assets are sold.
In order to be eligible of tax benefit in any kind of the above mentioned personal loan, you’ll need to provide valid proof in the form of documents.
You should also make sure that you keep a copy of all the documents related to the loan—such as amount taken, the installment’s paid, and so on. When you have all of the valid documents, you can apply for tax deduction on personal loan and enjoy the benefits.