A personal loan helps you out of financially tight spots such as a medical emergency. It is also used to pay for products and services, fund your education, or sponsor your holiday. A personal loan is easy to apply for and quickly disbursed. It is an unsecured loan, which means that the bank or the NBFC is lending you the money without asking for any security in return.
This can be a risky proposition for the lender with the element of not getting the money back. To counter this risk, lenders lend at a higher interest rate but also provide enough time to repay the loan. Together, the interest and original sum borrowed, along with the tenor chosen, directly determine your EMI amount. While there is no tax benefit on the principal borrowed, the interest paid over it can help you save on taxes.
Let us understand how.
Since a loan is not a part of your income from direct or other sources, there is no tax liability over it. However, when it comes to the interest paid on the loan, there are ways in which you can get tax rebates on a personal loan. Here are a few such scenarios.
Although a personal loan does not attract any tax on it, there aren't any particular income tax benefits on personal loans either, unlike secured loans such as a home loan or a business loan. But, a personal loan is easier to obtain, and convenient to repay, and you can use it for various expenses. Ensure you take a personal loan from a credible and authorised lender, or else the government might consider the loan as income from another source, in which case the amount borrowed will become taxable.
On Fi Money, personal loans are instant and paperless. In most cases, you may also be pre-approved for an amount that will be disbursed to you in minutes.
Personal loans do not have tax implications or benefits, except for home repair and renovation loans. Hence, you can claim personal loan tax deductions of up to ₹2L on the interest paid for the year under Section (b) of the Income Tax Act of India, provided you reside on the same property. No maximum cap on tax-saving deductions for properties given up for rent.
A personal loan is an unsecured loan without income tax benefits except when used to buy, construct, or repair residential property. In this case, if you live on the same premises, you can deduct up to ₹2L on the interest paid for the loan per year. If the property is rented out after repairs, then there is no limit to the amount you can claim under Section 24 (b) of the IT Act.
The principal and interest on home loans, a kind of personal loan that comes under 80C of the Income Tax Act, are both eligible for personal loan tax deduction. The maximum amount of deduction allowed is Rs. 1,50,000, which is an increased figure announced by the Ministry of Finance.
If a Personal Loan is used to buy assets such as non-residential property, jewelry, stocks, shares, etc., the loan money can be used for personal loan tax exemption. The cost of acquisition of the asset can be increased by including the interest component of the loan.