Yearly Tax Saving from your loans
Under the Indian Income Tax Act, various deductions are allowed and exemptions on the interest amount and principal repayment. This is the case for an education loan and a home loan. Though there is no tax deduction or exemption allowed on the personal loan, deduction on the interest of a personal loan is available under few circumstances.
If the loan is taken for the investment of an individual’s business, then the interest paid on the loan can be claimed as a tax deductible expense. While calculating the profit for tax liability the interest paid can be deducted from the profit. This will result in a reduced net taxable profit of the business further reducing the tax liability.
If you apply for personal loan for the purchase of residential property or to renovate or repair the property, you can avail tax deduction under section 24. The interest occurred on the loan amount can be deducted from the net annual value of the property. The maximum amount allowed for the deduction under section 24 is ₹200,000.
When the loan is availed for buying other assets like jewellery or car or any other non-residential asset, the interest paid is not exempted.
The exemption is allowed even if you apply for personal loan online. Getting instant loans is becoming easier day by day due to the swift and technically advanced lenders in the market. You can check your loan eligibility from your smartphone. These personal loan apps ask for very few details from the borrowers and the process is a lot easier. There is no physical paperwork involved. Although the instant loans or personal loans can be expensive compared to the other types of loan. They are the easiest to avail during situations like home repair, medical emergencies, unpaid bill payment, EMIs or so on. You can get a loan ranging from ₹20,000 to ₹4 lakhs.
If the instant loans are availed for property purposes or for business purposes, the interest on the loan amount can be claimed as tax deductible expense. However, the personal loan must be taken from a valid source like a bank or registered online platforms or other financial institutions. You will have to prove that the loan taken was for a valid reason. For example, in the case of construction/repair of your house you must possess bills like labour charges which will help you prove that the loan amount was used towards home repair. You can even apply for a personal loan in case of down payment towards your selected property and can avail the tax exemption on it.
Remember that when you take a personal loan, the amount is not taxable as the amount received as a loan is not an income. To claim the tax deduction on the interest of your personal loan, you will have to submit valid proof to the income tax authorities to back up your claims. Make sure you keep all the documents related to your personal loan safe for the assessment.