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Tata Capital > Blog > What are Tax Benefits on Personal Loan

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What are Tax Benefits on Personal Loan

What are Tax Benefits on Personal Loan

Personal loans are some of the most easily accessible loans you can obtain. Whether you have a big wedding planned, or going for higher studies, or even have a huge medical bill to pay, a personal loan is perfect for funding your big-ticket financial obligations. But did you know you can avail of several tax benefits on personal loans? Read further to learn more about eligibility criteria and steps to avail of personal loan tax benefits.

Eligibility Criteria for Tax Benefits on Personal Loans

For a borrower to be eligible for tax benefits on personal loans, they must use meet the eligibility criteria mentioned below:

1. You must use the funds for some specific purposes only, like construction or purchase of a property, investment in a business, and purchase of an asset.

2. And you must avail of the loan in your name or the name of your life partner or children.

Tax Benefits Available on Different Types of Loans

As you know, you can use a personal loan to fund your different financial objectives. And Indian Income Tax Act allows tax deductions only on personal loans used for specific purposes. So, tax benefits depend on the type of personal loan you avail of. Let us look at tax benefits available on different types of personal loans.

1. Education Loan Tax Benefits

If you take a personal loan to pay for your education, you are eligible for personal loan tax benefits. You can claim the interest you pay as a tax deduction on an education loan. Under the Income Tax Act’s Section 80E, you are eligible for a maximum deduction of Rs. 1.5 lakhs for self, spouse, or children.

2. Mortgage Loan Tax Benefits

Under Section 80C and Section 24 in the Income Tax Act, you get to claim tax benefits on home loans for both the interest paid and the principal repayment. The mortgage loan tax benefits include the maximum deduction for interest paid is Rs. 2 lakhs and Rs. 1.5 lakhs for principal repayment.

3. Medical Loan Tax Benefits

The interest paid on a medical loan can be claimed as a tax deduction. Section 80D of the Income Tax Act allows a maximum deduction of Rs. 60,000 for self, spouse, children, or parents.

4. Personal Loan Tax Benefits on Purchase of An Asset

You are also eligible for tax benefits if you obtain a personal loan to purchase assets like jewellery, non-residential property, or shares. The interest you pay becomes part of the acquisition cost. Higher acquisition cost reduces capital gains, which further reduces the taxable amount.

However, it is essential to note that you can only claim tax deductions from your capital gains equal to the interest amount when you sell the asset.

5. Personal Loan Tax Benefits on Investment in A Business

If you invest your loan amount in a business, you can get personal loan tax breaks by deducting the interest paid. You can decrease your tax liabilities and the net taxable profits of the company you have invested in.

How to Claim Tax Benefits on a Personal Loan?

You must furnish all the necessary proof of payment of the loan and the purpose for which you took the loan to claim to avail of a personal loan deduction in income tax. You would also need a loan statement and a receipt or certificate from the lender. Only then can you claim tax deductions while filing your income tax returns.

Wrapping Up

Personal loans help you meet your financial needs and come with several tax benefits that you can claim to reduce your taxable income. Now that you know the eligibility criteria for availing of personal loan deduction in income tax, you can easily benefit next time you apply for a personal loan.

Talking of your next personal loan, check out Tata Capital’s personal loan offerings. We offer multi-purpose personal loans at attractive interest rates and flexible repayment tenure. We will extend you a loan of up to Rs 35 lakhs without collateral. Visit our website to know more.

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