When you take a loan, one of the foremost considerationsis the tax benefit you will get on it. Tax benefits on loans help mitigate the financial burden of repayment, by saving you money on the amount of income tax you need to pay.
For some financing instruments like home loans, tax benefits are a given and are an advertised advantage of taking the loan. However, a home loan has a specific purpose, and it is not something you take more than once, perhaps twice in your lifetime.
So, what do you do when you need finance for your other needs? A personal loan checks all the boxes: it’s simple to manage as a first-time borrower, easy to secure and requires absolutely no collateral.┬аHowever, no one talks about the tax benefits on personal loans. This is because, unlike other loans where the list of tax benefits is straightforward, with personal loans, the benefits are shaped by how you use the loan.
Here’s how to claim tax benefit on personal loans:
1. Use them for business expenses
If you use an instant personal loan to finance your business expenses such as buying equipment, boosting your working capital, or expanding your operations, you are eligible to claim personal loan tax benefits. This is because the amount you pay as interest can be stated to be a business expense, too. This reduces your quantum of taxable profit and your tax liability at the same time.
2. Use them for housing expenses
As per Section 24 of the Income Tax Act, if you use a personal loan to buy, construct or renovate a property, you can claim the interest repayment of the loan as a tax break. While the ceiling for this stands at Rs.2,00,000 for a self-occupied home, there’s no such limit for a let-out property.
3. Use them to purchase assets
If you’re wondering how to get tax benefits on personal loans without renovating your home or investing in your business, consider this option. If you use the loan amount to purchase a valuable asset, be it a car, shares, jewellery, or something else, you can consider the interest paid to be a part of the cost of acquisition. While you can’t get benefits in the year you pay the interest in, you can avail benefits in the year you sell the asset. When viewed as part of the cost of acquisition, the interest portion of the personal loan reduces the capital gains earned from the sale of the asset, thereby reducing the taxable sum. As a result, the amount that you pay as tax decreases, too.
The next time you consider taking a personal loan, remember that when used smartly, this loan offers excellent tax benefits that go a long way in lowering your cost of financing. However, while you can get personal loan tax benefits when you use the loan for these three purposes, it’s important to remember that only the amount you pay towards interest repayment allows you to claim tax breaks. Principal repayment doesn’t result in any such benefits. So, to ensure that your borrowing experience is cost-effective, it’s worth the time and effort to research and zero in on a good loan.
Here are 3 main benefits you should look for in a personal loan –
- A high Loan Limit:┬аExpanding your business, renovating your home, or purchasing an asset that appreciates in value over time are all expensive undertakings, and you will need a loan that will give you adequate funding for your needs.
- A Flexible Tenure:┬аThis will give you the freedom to manage your loan repayment as per your financial capacity. In fact, some lenders also give personal loans that come with the option of re-paying just the interest amount as EMIs, and the principal can be paid later.
- Quick Processing:┬аPersonal loans are a great way of financing urgent needs, but a lengthy application process can get in the way. Choose a lender that has easy eligibility and documentation requirements, and a fast online application and approval process.
If you need a personal loan to meet your personal or professional needs urgently, Bajaj Finserv Personal Loans are a great choice. When you apply for a personal loan from Bajaj Finserv, you get a high loan limit up to Rs. 25 lakh at a nominal interest rate. With added benefits like online approval in 5 minutes, disbursal in 24 hours, and zero collateral make borrowing money a stress-free experience in more ways than one.┬аsource:┬аgoodreturns.in
