When you require immediate cash, a personal loan might be of great assistance. Whether it’s dealing with a medical emergency, paying for your wedding, making travel plans, or upgrading your house. You can easily meet your numerous financial needs with the aid of a personal loan. There are no limitations on how personal loans can be used because they are flexible loans.
In addition, a personal loan has several other benefits, including
Personal loans are collateral-free, so you don’t have to put any of your assets on the line to qualify for financing.
Personal loans are disbursed quickly by lenders. Applicants with good credit scores and eligibility can get a personal loan in just a few hours.
You can also avail of instant personal loans through personal loan apps. You can download these apps on your smartphone and apply for a personal loan online to get instant disbursal.
You have the flexibility to choose your personal loan tenure. Generally, it ranges between 12 and 60 months. You can choose to repay your personal loan at your convenience and as per your repayment capabilities.
Personal loans come with easy eligibility criteria and minimal paperwork. Lenders usually ask only for basic eligibility requirements for a personal loan based on your age, citizenship, monthly income, and credit score. The documents required for a personal loan include bank statements, PAN card, and Aadhar card.
Many lenders provide you with a personal loan limit. You can borrow from your personal loan limit as per your convenience and requirements. The interest rate will be charged only on the amount used by you and not on the entire loan limit.
Are Personal Loans Taxable?
Remember that a personal loan is not considered a part of your income, and hence, you don’t have to pay any income tax upon availing of the loan. However, this applies only if you borrow a personal loan from a recognised bank or non-banking financial corporation (NBFC). Personal loans from friends, relatives, or any unrecognised entity may be taxed as income.
Tax Benefits on A Personal Loan
Personal loans do not qualify for tax benefits. It’s because personal loans are unsecured loans and are usually considered for optional expenses. Unlike home loans, education loans, and business loans, the Income Tax Act of India doesn’t have any special provisions for providing personal loan tax exemptions on both principal and interest components.
Due to the lack of any direct mention of personal loan tax exemptions in the Income Tax Act, the end use of the loan amount decides whether you can get tax benefits on personal loans or not. Below are a few ways in which you can use your personal loan amount to avail of tax benefits on a personal loan:
For Purchase or Construction of A Housing Property
If you use your personal loan to purchase or construct a housing property, you can avail of certain tax benefits under section 24 of the Income Tax Act. Under this section, any amount paid towards the interest component of a loan used for the purchase, reconstruction, or renovation of a housing property is eligible for tax deductions.
However, it’s important to note that this personal loan tax exemption is available only if you use your personal loan for the renovation or reconstruction of self-occupied housing properties. Suppose you’re using it for a rented property. In that case, your rental income shall be reduced from the amount paid as interest on your personal loan, and tax deductions would be calculated accordingly.
To avail of tax benefits on a personal loan under section 24, you need to keep all relevant documents that can prove how you’ve used your loan amount.
For the Expansion of Your Business
You can avail of a personal loan and use it to grow or expand your business. From purchasing raw materials and equipment to upgrading your business infrastructure to managing your day-to-day business operations, you can use your personal loan amount to meet all your business-related financial requirements.
Doing so can also help you receive tax benefits on your personal loan. You can claim the interest paid towards your personal loan as a tax-deductible business expense. There is no limit on the amount that you can claim for tax deductions in this case.
For the Purchase of Assets
Besides using your personal loan to renovate your home and expand your business, you can also use it to purchase certain assets such as gold, jewellery, car, two-wheeler, etc., to receive tax benefits. The amount you use for these purposes will be considered asset acquisition costs, and you can claim them as tax deductions when you sell your assets.
Here, the acquisition costs reduce your capital gains and, in turn, your overall income tax liability. However, you can claim tax benefits on personal loans used for asset acquisition only in the year you sell your assets.
Paying for Your Higher Education
Using a personal loan to pay for your higher education can fetch you tax benefits under section 80E of the Income Tax Act. Under this section, any amount paid towards the interest component of a loan used for funding higher education for yourself, your spouse, or your children is eligible for tax deductions.
The maximum deduction allowed under this section is Rs. 1.5 lakhs in a given financial year. This benefit is over and above the deductions that you can claim if you are a student’s legal guardian and have taken a loan for his/her studies.
As you can see, personal loan tax exemptions are applicable only on the repayment of the interest component and not on the principal component. In case you use your personal loan for any purpose other than the ones mentioned above, you won’t be able to claim any tax benefits on your personal loan.
How to Apply for A Personal Loan?
Now that you’re clear about how you can use your personal loan to get tax benefits, let’s discuss how you can apply for a personal loan.
Step 1 – The first thing you need to do is select your lender. While selecting your lender, you should consider various factors, including personal loan interest rate, loan amount, eligibility criteria, and repayment terms.
Step 2 – After you’ve selected your lender, you need to go to its website to apply for an online personal loan. You can also do this by downloading personal loan apps on your smartphone.
Step 3 – Enter your personal loan and the tenure for which you want to avail of your loan. Choose an appropriate tenure so that you can easily repay your personal loan EMIs.
Step 4 – The lender will verify your details and disburse the loan amount in your bank account. You can then use your personal loan to meet your various financial requirements.
To Conclude
A personal loan can be a great option to handle an urgent financial requirement or plan an event. You can also get personal loan tax exemptions wisely by using your loan amount.
With credit success, you can avail of a gamut of loans including personal loans, home loans, and business loans at competitive interest rates and easy eligibility criteria. You can browse through our loan products and choose the one that’s best suited to your requirements.
