What are the tax benefits you can get on Personal Loan in 2020?by Radha Lakshmi Blogger
With a personal loan, you can fund a lot of purchases and medical emergencies. You can use it to finance education, wedding, travel, etc. Because of easier personal loan eligibility criteria, it is more accessible to salaried and self-employed individuals.
What makes personal loans even more beneficial is that borrowers can claim various tax deductions on the. While the Income Tax Act doesn’t give any specific deduction for a personal loan, you can get tax benefits if you use it for certain purposes such as buying a home and paying for education. So if you’re taking a personal loan for your business or purchase assets, you can certainly get some tax benefits under the IT Act. Because a personal loan is not part of your income, you don’t have to pay any income tax on it. Here’s how you can get a tax benefit.
Personal loan for business investment
If you’re using the loan amount for a business purpose – working capital, buying machinery, etc. - the interest payable can be claimed as an expense, which will ultimately reduce your business’ tax liability. What’s more, there is no limit on the amount that can be claimed.
Personal loan for residential property
If you’re using the loan for purchasing or constructing a residential property, you get tax benefits on interest paid under Section 24 of the Income Tax Act. For self-occupied property, you can get a tax exemption of Rs. 2 lakhs. If you’ve rented out the house, you can claim the interest paid as an exemption from your taxable income. For proof, you have to submit documents that say the loan amount was used for home renovation, purchase or construction.
Personal loan for investment in assets
You can also get tax deductions if you use a personal loan for purchasing of assets – stocks, jewellery, non-residential property, etc. The interest paid can be used for claiming a tax deduction, but not in the same year. Instead, it is added to the cost of acquisition. When you sell the asset, you can claim the tax benefit.
Things to note
To claim tax benefits for your personal loan, you will have to submit some documents as proof such as expense voucher, sanction letter, bank certificate, auditor's report, etc. To make repayment simpler, use an EMI calculator or a personal loan calculator before you apply for personal loan. Such a tool can help you calculate the EMIs you’ll be paying so you can pick a tenure that you’re comfortable with. Always pick a reliable lender that offers a feasible personal loan interest rates apart from flexible repayment terms. Some lenders don’t even charge a prepayment fee if you repay the loan ahead of time.There is no doubt at personal loans are a great way to overcome financial problems; moreover, they can be used as tax-saving tools. Do remember that the tax deduction can be claimed only on the interest part and not the principal, when you’re using it for one of the above purposes.
Created on Mar 29th 2020 12:18. Viewed 513 times.