Know The Top 3 Tax Benefits Of Personal Loans In India

When it comes to managing our finances, we all want to make the most of every opportunity to save money.

Personal loans have become a popular choice for many individuals, offering quick access to funds for various needs. But did you know that personal loans can also provide tax benefits under Section 24 of Income Tax Act?

In this blog post, we will explore the top three tax benefit on personal loan, helping you understand how they can help you save money on your taxes.

1) Tax Benefit On Interest Payments

Under Section 24b of Income Tax Act, you can claim tax benefits on the interest paid on a personal loan. This means that if you use the loan amount for specific purposes such as home renovation or higher education, you can avail deductions on the interest paid. For example, if you use a personal loan for renovating your home, you can claim deductions of up to Rs 30,000 per year on the interest paid. Similarly, if you utilise the loan for higher studies abroad, you are eligible to claim deductions on the entire interest amount.

2) Using Funds For Business Purposes

If you use a personal loan for business purposes, you can claim deductions on the interest payments under Section 36(1)(iii) of the Income Tax Act. 

Whether it's buying specialised equipment or stocking up inventory, using a personal loan for business expenses helps reduce your business's tax liability. 

The best part is that there is no upper limit applicable here; you can claim deductions on the entire interest amount.

3) Benefits On Property Addition Or Renovation

While specialised loans are available for purchasing property, they often come with longer repayment tenures and require collateral. However, if the conditions of a home loan are not suitable for your requirements, you can opt for a personal loan instead. 

Personal loans are ideal for funding renovations or additions to your house. According to Section 24b of Income Tax Act, you can claim exemptions on your interest payments if you use the personal loan amount to renovate or purchase a property. 

For example, if you wish to expand your house and build a garage, you can claim exemptions on your interest payments. If you own the house you're renovating, you can claim up to Rs 2 lakh per year.

Even if you live in a rented house, you can claim the entire interest amount.

Benefits Of Personal Loans

Apart from the tax benefit on personal loan, these loans offer several advantages that make them an attractive option for many individuals. Some key benefits of personal loans include:

• Quick access to funds: Personal loans provide quick access to funds without extensive documentation or collateral requirements.
• Flexible repayment options: You can choose a repayment tenure that suits your financial situation and repay the loan in convenient EMIs. Additionally you can also take help of Personal loan EMI calculator to estimate you Monthly EMIs.
• No restrictions on usage: Unlike other loans such as home loans or car loans, personal loans have no restrictions on how you use the funds. Whether it's financing a wedding, consolidating debts, or covering medical expenses, personal loans offer flexibility.
• Lower interest rates compared to credit cards: Personal loan interest rate are often lower compared to credit cards, making them an affordable option when you need additional funds.

Conclusion

In conclusion, personal loans offer more than just quick access to funds; they also provide significant tax benefits under Section 24 of Income Tax Act. By understanding the top three tax benefits of personal loans - interest payment deductions, usage for business purposes, and property additions or renovations - you can make informed financial decisions and optimise your savings. 

Now that you know the advantages of personal loans and the tax benefit on personal loan, it's time to explore your options. Visit Mahindra Finance's website to learn more about their personal loan offerings and start planning your financial future today.

FAQs

1) Can I claim tax benefits on the principal amount of my personal loan?

No, tax benefits can only be claimed on the interest paid towards your personal loan, not on the principal amount.

2) Are there any specific documents required to claim tax benefits on personal loans?

While there are no separate documents required to claim tax benefits, it's important to keep records of your loan statements and interest payments for reference and documentation purposes.

3) Can I claim tax benefits on a personal loan taken for consumption purposes?

In general, tax benefits on personal loans under Section 24 of Income Tax Act are applicable only if they are used for specific purposes like property addition or renovation, business expenses, or higher education. Personal loans taken for consumption purposes like vacations may not be eligible for tax benefits.

4) Can I claim both principal and interest payments as personal loan tax exemption?

No, only interest payments made towards personal loans are eligible for deductions under certain provisions of the Income Tax Act. Principal payments do not qualify for any personal loan tax exemption or benefits.