Is personal loan interest Tax Deductible?

Personal Loan are Taxable

An immediate personal loan is one of the key financial instruments that can deliver money without delay. Since these are unsecured loans, you do not have to supply the lender with any collateral or security. Your creditworthiness could be used according to your CIBIL score and repayment record. Consequently, the personal interest rates of loans are a little higher than those on which lenders cover their risk of possible defaults.
You can receive up to Rs 25 lakh from known creditors if you have the required personal loan eligibility.

But is a personal loan taxable after that? Would you benefit from any tax gain or not on personal loans?

Financial loans are usually not taxed at all. The reason is because the loan amount is not included in one ‘s income when filing a return on income tax. This means that you don’t have to pay any personal loans income tax. Please make sure you use the loan from a legitimate source such as a bank or other financial institutions.

How to claim personal loans tax benefit?

Deductions from income tax on interest paid on personal loans are permitted if the loan is used for the purposes mentioned below.

For business permitted as tax deductible expense from the profit of the business of the borrower prior to taxation Liability reduced according to the applicable marginal tax rate No Limit

For residential property construction Allocated as a net annual value deduction (Net Income) of residential property Tax liability reduced according to the applicable marginal tax rate to Rs. 2,00,000

For the purchase of any other property Not allowed in the year of payment of interest. Transaction payments are applied to the cost of purchasing the asset when an asset is sold, decreasing thereby capital gains Tax liabilities decreased in the year of asset purchase in accordance with the applicable rate of capital gains tax (short or long term) no limit.

Avail Tax Benefit for the Below mentioned Category

Business Investment

If the amount of the personal loan was invested in the company, the interest paid could be claimed as an expense. This decreases the borrower’s tax liability and reduces the net taxable benefits of the company it invested in. There is no limit on the amount that can in this case be claimed.

Purchase / construction investment of a residential property

Tax benefits from personal loans are available if you use the personal loan money to purchase or build a residential property. The borrower may benefit from tax benefits under Section 24 of the 1961 Income Tax Act. The maximum deductible is Rs.2,00,000 in this case for a house occupied by the borrower. The maximum amount that can be claimed is not limited to if the house has been rented to another person. In order to benefit from tax benefits, it is important that the buyer is the owner of the property.

Asset investment

The third and last situation where tax deductions on personal benefits may be made available is in situations in which the debt sum is invested in the acquisition of properties such as jewelry, non-residential land, bonds, other stocks or more. The borrower can’t receive a deduction in the same year that the interest is charged, it can be applied to the purchase cost.

It is important to note that the tax deduction applies only to the amount of interest and not to the principal loan. If the personal loan has been applied for other than the above reasons, no tax advantages on the personal loan will be granted.



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