Instant personal loan is a way through which an emergency fund can be acquired. Whether it is higher education, dream wedding, vacation or medical emergency, personal loan is the solution to all these problems. Due to easy eligibility criteria, it is an easy source of employment and self-employed people to get personal loan funds. But many customers do not know that they can also get tax rebate on personal loans. Let us tell you how you can take advantage of tax exemption on personal loan.
Tax exemption on personal loans in India
However, there is no direct deduction on personal loans under the Income Tax Act in India. But there are tax benefits on other loans like home loan, education loan and business loan. If you take a personal loan for expansion in business, buying a property, building a house or buying, then there are some tax benefits under the Income Tax Act.
Personal loan for business investment
If you want to use the amount of personal loan in business such as buying an asset other than property, then the interest paid on the personal loan will be added to the acquisition of cost. This can be claimed as an expense, which will reduce the capital gains. As a result, this will reduce your tax liability. Although there is no limit to the amount that can be claimed.
Personal loan for construction or purchase of residential property
If you want to take a personal loan for the construction or purchase of residential property, then you can claim tax exemption on the interest payment of a personal loan under section 24 of the Income Tax Act, 1961. If you are living in the property yourself, then under this section you can avail tax exemption of Rs 2 lakh. If the annual deduction is more than Rs 2 lakh, then you will not be able to claim exemption. But if you have rented a house to someone, then you can claim the total interest paid on personal loan as exemption from taxable income. But you will have to show all the documents that you have used the loan amount for renovation, purchase or construction of the house, only then you will be able to claim tax exemption.
Personal loan for investment in assets
You can get tax rebate on personal loan on purchase of property, jewelery, shares including non-residential. The cost of interest paid will be added to the acquisition and deduction cannot be claimed in the same year. But when you sell the property, you can claim tax exemption.
Personal loan is a great option to overcome the shortage of money in everyday life. It can also be used for tax savings as per the fixed strategy. Those taking personal loans must keep in mind that the tax deduction can be done only on the payment of interest or the loan has been used for the purposes mentioned above.
Why should a personal loan be taken?
Personal loan comes with many benefits and it is considered to be a good decision at the time of money strait.
– Multipurpose loans: Personal loans other than secured loans like home loans or car loans are not tied to any special purpose or condition restriction. You can use it for any purpose like higher education, transportation, big purchase, rental etc.
– Affordable interest rates: Now there are many lenders offering loans in the market. At the same time, the interest rates of personal loans are also economical. It starts from a minimum of 10.75 per year. If you meet the eligibility criteria and all the documents are also available, then you can get a personal loan at the lowest rates.
– Can be easily taken: Very few documents are required for personal loan. With the advent of technology in finance, it has become much easier to get a personal loan. You can get personal loan by submitting basic information and online documents right from home.
– Flexible loan term: The lenders give the customers a flexible period of 12 to 60 months to repay the loan. If you repay the loan well ahead of time, many lenders do not charge you prepayment fees or foreclosure charges.
Instant loan disbursement: After verification of the documents, the loan is transferred to the bank account within a few hours.
All banks or NBFCs (non-banking financial companies) offer personal loans. The interest rates, eligibility and eligibility criteria of each lender are different from each other and you should compare the terms and conditions of the personal loan before applying for a personal loan.