Personal loans are a great medium to finance a wide array of expenditures – ranging from higher education to grand wedding celebrations. Simply put, such loans are easily accessible, can be used for multiple purposes, and demand no collateral.
But is that all? No! They also help you save tax. Here’s how.
Tax benefits on personal finance: A closer look
Normally, if you avail personal finance, you will not be considered under the purview of taxation, the simple reason being that the said loan is not counted as income.
However, ensure that you avail personal finance from a reputed lender or the loan will be considered taxable if availed from an unidentifiable source.
Additional Read: Can We Get Tax Benefit on Personal Loan in 2021?
Personal finance tax benefits: When can you avail it?
Though not normally taxable, you can be eligible to claim personal loan tax benefitswhen the loan has been taken for particular purposes, as prescribed under the Income Tax Act of 1961.
Here are the specific end-uses for which you can claim tax benefits on your personal finance.
On credit used for business expansion
In case you have taken a personal loan for self-employed purposes, specifically for the expansion of your business firm, the interest you pay towards loan repayments will be eligible for a tax deduction.
On house improvement or renovation
Again, if the loan has been utilised towards home improvement or renovation, you will be eligible for a tax rebate, as per Section 24(b) of the Income Tax Act of 1961. In such a case, the interest you pay towards loan repayment, up to a maximum of Rs. 30,000, will be eligible.
Moreover, if you use up your personal finance amount on the improvement of a self-owned residential house, the Act allows a tax deduction of up to a maximum of Rs. 2 lakhs on the interest paid. On the other hand, if the house is a rented one, the total interest paid on the loan will be eligible for a tax deduction.
However, to avail the above-mentioned tax benefits, you must show proper documentation that proves that the loan amount was used towards home renovation.
On the purchase of other assets
If your loan amount is invested in the purchase of any other assets such as non-residential house property, jewellery, gold, even shares and stocks, you can claim tax benefits on personal loan. In such a case, the interest paid towards loan repayment will be counted as the cost of asset acquisition, reducing total capital gains, thus providing tax benefits.
For educational purposes
Finally, if you take personal finance to meet expenses involved in securing higher education, you can avail tax rebates on the interest paid towards such loans. These benefits are available for a period of 8 years or until loan repayment, whichever is earlier.
So, you see; availing personal finance can help you save tax in 2021. If you’re planning to take such a loan, choose an authorised lender such as Tata Capital. Check your personal loan eligibility with us and avail up to a maximum amount of Rs. 25 lakhs.
You can customise your loan with us by using our online personal loan EMI calculator. Choose a loan amount and tenure that you’re comfortable with.
And since our personal loan interest rates start at just 10.99%, there’s no reason to wait! Get in touch with us today.