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?
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!
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 in 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.
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.