You have heard about tax deductions on premiums of life and health insurance. You have heard about similar deductions on home loans. But have you heard about tax benefits on personal loans? If not, then don’t worry.
Most people don’t know that they can get tax benefits on personal loans. But you cannot just go and claim the benefit if you have taken a personal loan. Whether you get tax benefits or not will depend on the eventual use of the money that has been taken as personal loan.
The government only incentivizes something by giving tax benefits when the funds are being used for creation of future assets or for securing the individual. Problem with personal loan is that in general, it doesn’t fulfill either of these two conditions. But when you take a personal loan for the purpose of construction, repair or purchase of your property, you can claim certain tax benefits.
The government allows tax deductions on loans taken to buy residential properties or to repair it. So if you have taken a personal loan for repair or renovation of your existing house, then these can be considered as legal expenses and be eligible for claiming deduction. Here is something else to think about - use of money towards downpayment can also be claimed for tax exemption.
But remember that tax authorities need to be convinced that money has actually been used for repair work of property. So you need to provide adequate proofs about having used the money for purpose of purchase/repair of your property. So preserve all documentary proofs that establish the end use of the money. In case you have used the amount for repair works, make sure to preserve the bills for materials and labour, as they will be needed at the time of making claims.
Now its clear that you can use the funds taken as personal loan for housing purposes. But personal loans have high rates of interest and are much costlier than home loans. So don’t be tempted to take personal loan for housing works. its always best to take a home or property loan for buying or repairing of property. So irrespective of any tax benefits, make sure that money for house-related expenses is taken from personal loan only as the last option.