- June 26, 2020
- Posted by: Ganeshcbani
- Category: Blog
A personal loan provides funds for personal financial needs, regardless of whether it finances a vacation or a wedding. Personal loans are higher than other regular loans and are typically short-term loans. The criteria for a personal loan are, however, much smaller and are thus much easier to apply for. Most citizens may not be aware that personal loans have an added benefit as personal loans offer tax advantages. The Indian Government provides tax benefits for the repayment of loans. Let’s read more about tax incentives for personal loans.
Good provisions for personal loans
Personal loan tax advantages in India:
Specific deductions are not specified on the Indian Income Tax Act on personal loans, but deductions on other routine loans such as education loans , home loans etc. are accessible. Nevertheless, this does not mean that the personal loan tax benefits can not be used. As there is no clear mention of the tax deductions on personal loans in the Indian Income Tax Act, consideration shall be given to why the personal loan was made for tax deductions in respect of personal loans. Tax incentives can only be paid for personal loans if a personal loan is used for a deduction of income tax.
The personal loan tax exclusion is allowed for only three cases.
The following are the three cases in which a personal loan has the right to tax benefits:
If the value of a personal loan is invested in the company, the interest paid can be listed as an expense. It reduces the borrower’s tax burden and raises the company’s net taxable income. There is no limit on the amount that can be claimed in this case.
Investment to buy and build a residential property
Your personal loan may provide financial benefits if you have used the personal loan money for the purchase or construction of a residential property. For this reason, the borrower may use tax benefits for interest repayments pursuant to Section 24 of the Income Tax Act of 1961. The maximum deduction for a house occupied by the creditor in this situation is Rs.2.00,000. The total amount that can be charged if someone has rented the property is not limited. It is necessary for the borrower to own the property to take advantage of tax benefits.
Investment in land
The third and final case where tax deductions on personal loans may be applied is where the loan amount is expended on the purchase of property such as jewelry, residential properties, shares, other inventories, etc. The creditor does not demand the benefit in the same year that the interest is paid, but must add it to the expense of the purchase.
It should be noted that the deduction from taxes is only applicable to the amount of interest and not to the capital loan value. Unless personal loans have been applied for for other than the above-mentioned reasons, no tax benefits on personal loans shall be granted.