Even though personal loans do not qualify for tax deductions, whether the loan is used for a business transaction, the purchasing/construction of a residential property, or the purchase of properties for which deductions are allowed, tax benefits can be obtained.
A personal loan is a type of loan that provides funds for a person's personal financial needs, such as a holiday or a wedding. Personal loans have a higher interest rate than other types of loans and are typically for a shorter period. A personal loan, on the other hand, has much fewer eligibility requirements and is therefore much easier to apply for. You can check Personal Loan Eligibility. Many people are unaware that personal loans provide an additional value in that they can be used to obtain tax benefits. The Indian government provides tax incentives for loan repayment.
Some of the tax benefits are :
Business investment: The interest charged on a personal loan can be claimed as an expense if the money was used to start a company. The borrower's tax burden will be reduced, as will the net taxable income of the company in which they have invested. In this case, there is no limit to the sum that can be claimed.
Investing for building or purchase of residential property: If a personal loan is used for the purchase or construction of a residential property, the borrower may be eligible for tax benefits. Section 24 of the Income Tax Act of 1961 allows the creditor to seek tax benefits for interest repayment.
Investment in assets: The last type of case where one can avail tax deductions under personal loan-supposing is the case that jewellery, non-residential property, investments, shares, stocks, etc. The interest can be claimed in the same year in which the interest is paid by the borrower but it will be added to the cost of acquisition. The tax can be claimed in the year on which the borrower sells the asset. The deduction of tax can’t apply to the principal amount, but the tax deduction is available only on the interest amount. When the personal loan is applied for any other reason which is not stated above, then the tax deduction benefit is not granted on the personal loan.
Some of the other uses where you can't claim the tax benefits are:
For buying a new automobile: Here certain loans like specialized car loans, 3 wheeler loans, 2 wheeler loans, etc are now available in the market. People can get the vehicle in hand after paying in installments.
Filling other loans: People make money when needed and as they become unable to pay them back at the specified time they use another loan to pay them. Vijaya Bank Personal Loan has a personal loan with a good interest rate.
For wedding events: People can use funds from a personal loan to host weddings.
Lowers burdens: When a person takes a personal loan to pay back the burdens he or she has caused, then they can use this money to pay the repayment amount. When people can't pay the EMI of other loans then they can use the funds from a personal loan to pay the other loan.
Educational use: When people are not able to pay their fee, they use this amount to pay them.
For medical purpose: People who lack the money can use a personal loan to pay them. A personal loan can use this at any time. These are easily available and easy to apply.
Conclusion: The tax exemption and reduction on a personal loan can only be availed if the purpose of the personal loan is for the above-stated reasons.
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