How to Avail Tax Benefits on Personal Loan?

Loan providers have helped millions of people get money right in a time of need.

From unexpected bills & medical emergencies to new phones & solo trips, personal loans empower you to make it all happen.

But want to know another good thing about taking personal loans?

Tax Benefits!

Yes, you read that correctly. You can claim tax benefits on the personal loans you take when you file your returns.

Now that the tax filing season is getting closer, read on to understand the eligibility criteria to claim tax benefits for your personal loan!

Are Personal Loans Taxable?

Since personal loans are not a part of your income, they’re not taxable. This means, there are no additional tax benefits on them.

However, there are certain scenarios in which you may be able to claim some benefits on them. But this will only be applicable if you borrow money from a bank or NBFC that holds a RBI licence and follow all the regulatory practices for the same. You will also require the appropriate paperwork and evidence for it.

Want to know in which scenarios you can claim these tax benefits? The keep reading this blog:

Here are the 3 scenarios in which you can claim tax benefits for your personal loan:

1) You Use Your Personal Loans in Purchasing, Renovating or Renting a Property

Under Section 24(b) of Income Tax Act, 1961, if you use your loan amount in constructing or purchasing a piece of property, you can be exempted from the interest rate paid on it.

You can claim the interest in 3 circumstances:

— If you use your personal loan in acquisition, construction, repairing or re-construction of your let-out property.

— If you use your personal loan in acquisition or construction of a self-occupied residential property, you are exempted the interests up to ₹2 lakhs.

— If you use your personal loan for home renovation or reconstruction, repairs or renewal of a self-occupied residential property, you are allowed a deduction up to ₹30,000.

Keep all the relevant and important documents handy to claim these deductions.

2) You Invest Your Personal Loans in Business

If you have invested your personal loans into your business, then the interest rate charged on that loan is considered as an expense.

Under Section 37(1),you can claim the interest of the loan you invested in your business. The deduction can be applied either for investment or the expansion of your business.

Be sure to provide the appropriate documentation that shows the loan was invested in or expansion of the business.

3) You Invest Your Personal Loans in Other Assets

If you are investing your personal loans in certain assets such as jewellery, shares, or non-housing properties then you can claim the tax deducted on the interest.

You won’t be able to claim the deduction in the same year but the interest amount for purchasing the asset is considered as an acquiring cost. You can claim the interest in the year you sell off the asset.

Also Read: What is Form 16? Differences Between Form 16, Form 16A, 16B

In Conclusion

The personal loans you take are not taxable, because they aren’t a part of your income.

And now you also have unlocked an added advantage of saving taxes on your personal loan.

Make sure you avoid any suspicious source of borrowing, as money received in this manner would be considered as a part of your income, making it impossible for you to claim any deductions.

Play it safe by approaching a registered and trusted banking or non-banking financial service.

For instance, Zype is a genuine fintech platform that follows all the regulatory requirements of the RBI, making it a credible source through which you can avail a personal loan and claim tax benefits on it.

Frequently Asked Question

Is A Personal Loan Covered Under 80c?

If you borrow money for purchasing, constructing, or renovating your home you can get a tax benefit on your personal loan. However, contact a financial advisor CA before trying to claim these benefits.

Can I Claim Tax Relief On Personal Loan Interest?

While you may be unable to claim tax benefits on the personal loan amount you take, you can claim it on the personal loan interest in certain scenarios.

Can I Show A Personal Loan In ITR?

Yes you can. If you take a personal loan in scenarios which are eligible for tax benefits, then you can show a personal loan in ITR.

Is Personal Loan For Marriage Tax Exemption?

No, a personal loan used for marriage is not eligible for any tax exemptions.