Tax Benefits on Personal Loans

Tax benefit on personal loans can be claimed if you use the borrowed fund for construction of a residential property, purchase of any other asset, or for business purposes. The personal loan tax exemption limit in case of construction of a residential property is up to Rs. 2 Lakhs.

Personal Loan Tax Exemption

Personal Loans per se are not tax saving instruments unlike Home Loans or education loans. Personal Loan Tax Exemption benefit can be availed if the loan utilised for the purposes mentioned under Section 24(b) of the Indian Income Tax Act, i.e., for construction of a residential property, for renovation/repair of residential property, for purchase of an asset, or for business purposes.

Tax benefit can be availed if utilised for the purpose mentioned under Section 24(b) of the Indian Income Tax Act. 

Important point for tax benefit on Personal Loan
If you use a personal loan for construction of a residential property, for renovation/repair of residential property, for purchase of an asset, or for business purposes, make sure you have relevant receipts to prove the same. It will help you claim deduction under the Indian Income Tax Act.
 

For purchase of an asset

If the Personal Loan is utilised for purchase of an asset like shares, jewellery, or non-residential property, the amount of interest paid on the Personal Loan will be added to the cost of acquiring the asset.

The benefit of tax deduction will not be available immediately in the year when the asset is purchased but will be added to the cost of acquiring the asset and the tax benefit will be allowed in the year when the asset is sold. Adding the interest paid on Personal Loan to the cost of acquiring the asset will increase the value of the asset. This will reduce the capital gains liability when the asset is sold. There is no limit on the quantum to claim tax exemption under this provision.

Personal Loans per se are not tax saving instruments unlike Home Loans or education loans. Tax benefit can be availed if the loan utilised for the purposes mentioned under Section 24(b) of the Indian Income Tax Act, i.e., for construction of a residential property, for renovation/repair of residential property, for purchase of an asset, or for business purposes.

Tax benefit can be availed if utilised for the purpose mentioned under Section 24(b) of the Indian Income Tax Act.

How to Claim Tax Benefit on Personal Loans?

Tax exemption under the Indian Income Tax Act allowed for Personal Loans depending upon the end use. It should also be noted that the Personal Loan should be availed through proper channels if you wish to claim tax exemption. Exemption on the interest paid on Personal Loans is available if the loan is utilised for the following purposes:

For the construction of a residential property

If the Personal Loan is used for the construction of residential property, tax exemption can be claimed under Section 24(b) of the Income Tax Act for the interest component of the loan. In case of a let-out property, there is no limit on the quantum of interest which can be claimed as deduction under section 24(b) However, in case of a self- occupied property, the limit is Rs. 2 Lakhs.

For renovation/repairs of existing residential property

If the Personal Loan is used for renovation/repair of the existing residential property then you can claim tax benefit for the interest component on the loan to the extent of Rs. 30,000. For this you will be required to provide necessary documents to prove that the loan is utilised for repairs/renovation of the property.

There is no maximum limit on the quantum of interest which can be claimed as deduction under Section 24(b) if the property is let-out. The limit fixed for claiming the exemption in case of the self-occupied house is Rs. 30,000.

For business purpose

If the proceeds of the Personal Loan are used for business purposes the interest paid towards the loan can be treated as an expense. This can be deducted from the taxable income. The taxable income in business terms is the Company's profit and gross revenue. The interest component of the Personal Loan can be deducted from the Company's net profit. With this the taxable income will be reduced which in-turn will reduce the tax liability. Under this provision there is no limit on the quantum to claim exemption.


 

Kotak Personal Loan Festival Offer 

Ahead of festival season, Kotak Mahindra Bank has announced Rs 999 flat processing fee offer on Personal Loans. Customers can avail of instant approvals on personal loan applications up to Rs. 20 Lakhs at lowest interest rate starting at 10.25% p.a for maximum of 5 years. 

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Tax Benefits on Personal Loans FAQs

Can I get tax benefits on a personal loan?

Yes, but only if you use the personal loan amount for construction of a residential property, for renovation/repair of residential property, for purchase of an asset, or for business purposes.

Is a personal loan covered under 80C?

Under Section 80C, you can claim deduction up to Rs. 1.5 Lakhs on the personal loan repayment of the principal amount if the loan amount is used for construction or purchase of new property.

Is there any tax exemption on personal loan?

Yes, but only if it is used for the construction of a residential property, for renovation/repair of residential property, for purchase of an asset, or for business purposes.

Does a personal loan count as income?

No, a personal loan is not considered income and is not liable to be taxed unless the loan is forgiven.