A personal loan is a type of loan that gives borrowers access to money for personal needs. A personal loan can be used for all of these things and more, including an unexpected wedding price, an emergency vacation demand, and a sudden cash crunch. An fast personal loan has far less strict requirements than other loans and is simple to apply for online.
The primary factors to consider when taking a loan are the interest rate, tax deduction, and benefits offered to borrowers.
Situations Where Interest is Tax Deductible
There are no special deductions for Personal Loans under the Indian Income Tax Act, but it doesn’t mean that tax benefits cannot be availed on Personal Loans. The Indian Income-Tax Act allows for a tax deduction on Personal Loan interest taken to fund purposes like education, home purchases, and business investments.
Amount Spent on Conducting Business
One way to reduce your taxes is by investing the Personal Loan in your business and claiming the interest you’ve paid on this loan as an expense. When you invest money in a business, the interest on that loan is considered an expense and can be deducted from the tax owed. This will lower what taxes are taken out of profits for this year’s filings and will help reduce net taxable income.
Amount Spent on Purchasing Real Estate
You can get tax deductions via Personal Loans to purchase or construct a residential property. The borrower can take advantage of these benefits by repaying interest on the same under Section 24 of the Income Tax Act 1961. It allows for up to 2 lakhs worth of savings, as per government rules. There’s no limit on how much you can claim if your house has been rented. It needs to be yours and currently occupied by someone else to avail tax benefits.
Amount Spent on House Renovation
House renovation is an investment in your home. It ensures that you are living in the right conditions. A Personal Loan may be one way that bridges this gap. The government allows tax deductions of up to Rs.1,50,000 on the principal amount of the Personal Loan taken for home improvement. So, give your home a much-needed makeover and create a beautiful and comfortable space to come home to.
Amount Spent on the Purchase of any Additional Assets
One can avail of tax deductions under a Personal Loan when the interest has been paid on loans invested towards assets such as jewellery, non-residential property, or shares. The borrower cannot claim this benefit for their year of payment, but it is added to its cost acquisition date. The borrower can claim the tax benefit any year they sell an asset. However, when you take out this Personal Loan for reasons other than those mentioned above, paid interest will not be eligible for claim benefits.
Eligibility of Personal Loan
Eligibility criteria for Personal Loans can vary depending on lenders and the specific loan product. However, Credit success has basic eligibility criteria and document requirements. All the applicants are evaluated based on these 5 main eligibility criteria for a Personal Loan:
Age: The age of the applicant should be a minimum of 24 years while applying for a loan and a maximum of 57 years.
Citizenship: The applicant should hold an Indian citizenship.
Employment: The applicant must be a full-time employee in their current job.
Work Experience: The applicant should have a minimum of work experience of 1 year and at least 1 month of stable employment in the current organisation.
Monthly Income: The monthly net take-home salary of applicants must be at least Rs.30,000.
Conclusion
A Personal Loan is considered a loan rather than income, so it will not be subject to income tax when you receive it. These loans might come at a higher rate than other loans but are more accessible. The application process is simple and quick. Even better, you can avail of deductions on Personal Loan interest as per the Indian Income Tax Act. When in need, choose a Personal Loan to fund your requirements and instantly avail multiple benefits.
