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Tata Capital > Blog > Can We Get Tax Benefit on Personal Loan?

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Can We Get Tax Benefit on Personal Loan?

The income tax filing session is in full swing. And, it is natural for people to want to avail some form of tax benefit. In this article, we will be talking about whether there is any tax benefit on personal loan.

Are Personal Loans Taxable?

Unlike salary, business profit, or investment earnings, where you get to keep the money, personal borrowings or loans have to be repaid, and hence cannot be a part of your income.

As a result, there is no income tax on personal finance. However, only personal credit or loans borrowed from any recognized NBFC or Bank is not taxable. There may be some tax implications if you receive personal loan or credit from family members or friends.

Personal Loan Tax Exemption 2025

There are no tax exemptions on personal finance. Since personal credit falls under unsecured loans without any collateral, the Income Tax Act (ITA) does not allow for any tax benefits on this type of borrowing. However, you can avail tax deductions on loans taken for specific purposes such as a Home Loan, Business Loan, Vehicle Loan, etc.

Different tax deductions and exemptions available on Personal Loans

Exemption Applicable onBorrower ImplicationsExemption or Deduction Limit
If the personal loan is used for home improvementClaim tax deduction on the interest paid under Section 80 C of the Income Tax Act 1961Up to Rs 1.5 Lakh
If the personal loan is used for Purchasing or Constructing Residential PropertyClaim tax deduction on the interest paid under Section 24 of the Income Tax Act 1961Up to Rs 2 Lakh
If the personal loan is used for business purposesClaim tax deduction on the interest paid under Section 36(1)(iii) of the Income Tax Act 1961No limit

Why Should You Consider a Personal Loan Even Without Tax Benefits?

While tax exemption is not one of them, availing personal finance has several advantages, such as:

Unsecured loan:

Personal credit or loans require no collateral. This means you don’t have to mortgage or hypothecate any assets.

Minimal documentation:

Processing personal finance requires minimal paperwork for processing, mainly because it is an unsecured loan. Applicants only need to provide their KYC documents and bank account statements. This also results in faster loan processing.

Financing up to 25 lakhs:

Availing personal finance is a great way to raise substantial amounts in case of an emergency. If you have a good credit score and a steady income source, you can easily avail of personal finance of up to Rs. 25 lakhs.

Relaxed personal loan eligibility:

Personal finance comes with relatively relaxed eligibility criteria, catering to salaried as well as self-employed individuals. While the specific criteria are different for different institutions, if you are an Indian citizen between the ages of 22 to 58 with a minimum monthly income of Rs. 15,000, you can apply for personal finance.

Also,read-: Tips to Save Money through Personal Loans

Tax Benefits Available for Personal Loans

You can avail of a personal loan deduction in income tax only for specific purposes:

  • Section 80E: If you take a personal loan for higher education, you can claim a tax deduction on the interest paid. The loan can be for yourself, your spouse, or your children. You can avail of this benefit for up to 8 years or until the interest is fully repaid.
  • Section 24(b): If you use the loan for home repairs, renovation, or buying a house, you can claim a personal loan tax deduction on the interest paid. The maximum deduction limit is Rs. 2 lakh per year for self-occupied homes. There is no limit for rented properties.
  • Section 37(1): You can claim a deduction on the personal loan interest if the loan is used for business expenses. The interest amount can be fully deducted from your taxable business income.

Common Mistakes to Avoid When Claiming Tax Benefits

Avoid these common mistakes when claiming income tax benefits on a personal loan:

  • Assuming all personal loans are tax-free: Not all personal loans qualify for tax benefits. You can only claim deductions if the loan is used for eligible purposes like education, business, or home renovation.
  • Using the loan for the wrong purpose: Make sure the loan is spent strictly on the approved purpose. If not, your deduction will be denied.
  • Not keeping proper documents: Always maintain loan agreements, repayment statements, invoices, and other proof of how the loan was used. Missing or incomplete records can lead to your tax claim being rejected.

Conclusion

Are you seeking personal finance options with attractive interest rates? If so, your search is over! Tata Capital’s personal loan interest rates start at just 10.99%

If you are confused about how much you can afford, use Tata Capital’s personal loan EMI calculator, a simple way to plan your loan tenure and know precisely the amount you will pay each year.

Tata Capital’s personal finance options come with a hoard of advantages such as speedy processing, online application, and minimal documentation. Our personal loans for self-employed as well as salaried individuals are bound to suit any pocket.

So, what are you waiting for? Visit the Tata Capital website now.

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FAQs

Can I get tax refund on personal loan?

You cannot claim a tax refund directly on personal loans. However, if the loan is used for specific purposes like home improvement, you might benefit from deductions under Section 80C of the Income Tax Act.

Can I get tax benefit on a personal loan?

If the personal loan is used for specific purposes like home renovation, you might be eligible for deductions under relevant sections of the Income Tax Act.

Which loans are exempted from income tax?

Personal loans used for business purposes, home renovations, purchase or construction of residential property are eligible for tax exemptions under the Income Tax Act 1961.

Is personal loan exempted from tax?

Usually, personal loans aren’t taxable since the loan amount is considered to be part of one’s income when filing income tax returns. 

Is personal loan taxable in India?

In India, personal loans are not taxable. However, interest paid on the loan may be eligible for deductions under certain conditions.

Can interest on a personal loan be claimed as a deduction under Section 80E

Yes, if you use the loan for higher education, you can claim the interest paid as a tax deduction under Section 80E for up to 8 years.

Are personal loans used for business expenses eligible for tax deductions?

Yes, interest paid on personal loans used for business purposes can be claimed as a business expense under Section 37(1).

Does repaying the principal on a personal loan qualify for any tax benefits?

No, only the interest paid qualifies for tax deductions. The principal repayment does not offer any tax benefit.

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