Know About the Tax Benefits Linked to Your Personal Loan
A Personal Loan is credit that is used for expenses of a personal nature such as debt consolidation, meeting the costs of a wedding, taking a vacation, buying electronics, home renovation and meeting unexpected medical expenses, amongst others.
Typically unsecured, Personal Loans are offered on the credibility of the borrower, along with their capacity to repay the amount. The amount that can be procured through this loan varies from a minimum of 50,000 to a maximum of 50 Lakhs, while the tenure of repayment may range from 12 months to 60 months.
Under ideal circumstances, a Personal Loan is seen as a sign of financial indiscipline and is therefore not accompanied by any tax benefits. However, there are some specific ways to put your Personal Loan to use, to enjoy particular tax exemptions. These are as follows:
Purchasing a House
Under Section 24 pertaining Home Loans, the borrower is eligible to get a tax deduction for the interest repaid on the borrowed capital, with the maximum limit of 2 Lakhs.
Similarly, Section 80 C exempts the borrower from paying taxes on the repaid principal, with a maximum limit of 1.5 Lakhs.
However, most people are led to believe that this exemption is only available for Home Loans. The truth is, a Personal Loan taken with the aim of purchasing a house also qualifies for the aforementioned tax benefits. In fact, even the credit borrowed from family members and friends is eligible for this exemption, if you can furnish the required proof.
All you need to do is to provide a proof that the loan amount has been used towards making the down-payment for the home. However, you can only reap this benefit after the construction of the house is complete.
Renovation of your House
As was the case with the purchase of a house, even the renovation of a home attracts similar tax benefits, although these are confined to repairs and improvements, including –
- Adding a new balcony
- Building an additional room
- Creating a new floor to the house
- Extending the existing rooms
- Painting of the interior or exterior of the house
- Relaying of tiles or floor
- Installation of plumbing and alarm systems
Here, it is imperative to note that purchase of home improvement products such as furniture or electric appliances does not attract any benefits.
Moreover, on using the amount gained via a Personal Loan for home renovation you will only qualify for the benefits under Section 24, and not for those under Section 80C. The tax deduction under Section 24 is limited to a maximum of 30,000 per year for self-occupied properties, and to a maximum of 2 Lakhs a year for let-out properties.
Here again, you must be able to furnish proof of using the loan amount towards home renovation to claim the benefits.
If you happen to be a business owner and Apply for a Personal Loan under the name of your business, you can claim the interest paid towards this loan as an expense. This amount can be deducted from your business profits so that you can enjoy the much-needed exemption for the same.
If you’re using the Personal Loan to buy assets including shares, debentures or machinery, you can write it off as the cost of acquisition, and revel in the tax benefits pertaining the same.
We hope that you now have a fair idea regarding using your loan in a way that will help you meet your financial obligations and offers you tax benefits.
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