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Is There Any Tax Benefit On a Personal Loan?

Author: Poonam Dambare
by Poonam Dambare
Posted: Nov 03, 2018

Is There Any Tax Benefit On a Personal Loan?

Over few years, it has been seen that the demand for the personal loans has been on the rise. This change may have been because of several changes in society’s mindset.

Rising Demands of the Personal Loans

It has been seen that the people, these days are looking towards better and quality lifestyle and in the process, even if they have to take the help of retail loans to accomplish their dream and meet their goals, they don’t mind it. The Internet accessibility and financial institutions have been other prominent reason in bringing more awareness among the people towards the loans and gone are the days, when the people consider these loans are a liability. This era is the time, when you need to fulfill your goals and demands; people believe in today and this changing attitude of theirs, is pushing the demands for the Retail Loans more. The better education and more curiosity among the people for the loans, has pushed the Personal Loans market, further more. With the competition growing among the lenders, the push towards grabbing more customers, has also led to the attractive offers and schemes by several banks, and thus people are getting benefited from the Personal Loans. Thus, the number of people, who are availing the Personal Loans, has been seen as increasing.

Personal Loans offer several Benefits to the People

The Personal Loans offer with the several benefits to the people. No need of collateral, no long and tedious documentation check, easy and instant availability are just some of the benefits associated with the Personal Loans. But are the Personal Loans tax exempted? Do Personal Loans offer the people with the benefit of tax exemption? Not many information will you be able to gather on the same. That’s why lets discuss, tax benefit aspect on Personal Loans and know if they really come with any benefits as such.

Before we dive in deep about the tax exemption of the Personal Loans, let’s discuss where we can spend the Personal Loan amount at:

Where you can spend your Personal Loan Amount?

The Personal Loans as suggested by the name can be availed for the personal needs. The personal needs may be any and thus, the Personal Loans can be availed for any purpose. Even you require not furnishing any such details and data to the lender, on where the loan amount I to be spent on. When it comes to the Personal Loans, you are completely free, where you spend the loan amount at. However, over the years it has been seen that there are few fields, where people like to spend the Personal Loan amount, which are listed below:

For tuition fees: While there are educational loans available for the purpose, there are some situations and conditions where Personal loans prove quite beneficial when compared to education loans. It has been seen that, personal loans are being used for paying up the tuition fees, in some conditions

For Buying Educational Equipments: There are some loan types, which can cover the additional cost of buying equipments, but still are been seen as availing personal loans for buying educational equipments. Thus, if a person is looking towards buying educational items and equipments on an urgent basis, he/she can avail Personal loan to accomplish their need

For covering medical needs: There are some conditions, when your emergency funds are not that sufficient to cover your medical bills. The emergency conditions come unspoken and you may need some additional funds to cover medical costs of self or your loved ones. In such a scenario, you may opt for the Personal Loan and can cover the need of additional funds for the treatment.

For Business Purpose: While, business of various kinds are available for you in case, you are looking for the business expansion or setting up a business of your own, people are seen going for the personal loan to meet their demands for the business needs, owing to various benefits of Personal Loans over Business loans.

For Tours and Trips: People are seen as taking Personal Loans for the Trips and Tours, especially to cover the trip cost for Abroad.

For Wedding: There are some sections of the society, who forcefully need some additional funds for covering the wedding costs of their daughters and sons; there are also a few section of people, who want to spend lavish on their weddings and even don’t kind taking a Personal Loan to meet this dream.

For home Improvement: Some people like to take Personal Loans for buying household items or for the home renovation. The Personal Loans are also being used for the home extension in some cases, especially in cases, where people don’t want to put collateral for the same.

While, the Personal Loans can be availed for any sort of requirements, and nobody is going to ask you where you are going to spend the loan amount, our main question still is unresolved. Are the Personal loans carry any tax benefit. So, let’s discuss this aspect:

Tax Benefits on Personal Loans

Section 24B: The Section 24B states that "Income from House Property" where deduction towards interest paid on the borrowed capital can be claimed as an exemption from the income, a person if borrows capital towards covering various requirements of the housing, which is valid on acquisition, construction, repair and renovation is liable to get a tax exemption. Here are the basic rules:

  • For a property that is self-occupied, a person can claim a deduction from the income earned on interest charges of up to INR 1.5 lakhs during a specific assessment year.

  • While, for a second property that is let out, the taxpayer is offered a benefit to claim a deduction on the interest charges without any upper ceiling.

  • For loan repayment after completion of the construction, a person can claim exemption on the interest paid.

However, in order to get the benefits of the tax exemption, you need to furnish all relevant details and documents to prove that the amount of the Personal Loans has been utilized for covering the housing requirements.

For Business Purpose

In case, you utilized the money for the business purpose, the interest paid is allowed to be claimed to be exempted. This in turn reduces the net taxable profits of the business and thus reduces the tax liability of the person.

For purchasing any other assets

There are several conditions, when the people buy some assets like shares, bonds, jewellery and non residential houses, the amount of the interest paid on such a loan will be added to the costing of the asset purchased. However, one must remember that the deduction of this kind, will not be added immediately in the same year, but will be incurred in the year, when the asset will be sold off. Thus, expecting for the immediate exemption will return you with disappointment.

In fact, when it comes to the tax exemptions on Home Loans and Educational Loans, the Government of India, offers several such deductions and tax exemptions. However, when it comes to the personal loans, the strict rules don’t allow several tax exemptions on Personal Loans. The problem with the Personal Loan is that it can be used for any purpose, and thus the tax deduction is not featured on the personal loans, but in fact on the purpose, at which the loan amount is spent on.

Here’s the table explaining the Personal Loans and Tax Exemptions:

Use of Personal Loan

Tax treatment of interest expense

Implication for the borrower

Exemption Limit

For Business Purpose

Reduces the net taxable profits of the business and thus reduces the tax liability of the person

Tax liability gets reduced as per applicable marginal tax rate

No Limit as such

For construction of residential property

Allowed as a deduction from Net Annual Value of the residential property

Tax liability gets reduced as per applicable marginal tax rate

Up to INR 200000

For purchase of any other asset

Not allowed in the year in which interest is paid. Interest expense gets added to the cost of acquisition of the asset at the time of sale of asset, thus reducing capital gains

Tax liability reduced in the year of sale of asset as per applicable capital gains tax rate (short term or long term)

No Limit as such

Points to remember while taking a note on Personal Loan Tax Benefit

There are some points, which you must keep in mind, in regard to the Tax Benefit on a Personal Loan. Here are they:

  • The amount you receive under the Personal Loan, is not liable for any tax as the amount you receive is not an income

  • For claiming the tax benefits on the interest paid on your personal Loans, you must furnish all adequate valid documents to the income tax department in support of the claim for the concerned tax benefits claims.

  • In order to claim tax benefit on a personal loan, you need to have a complete set of documents like expense vouchers, bank certificate and sanction letter along with various other details furnishing all information and must be capable to furnish them to the income tax authorities at the time of demand.

The Personal Loans offer you so many added benefits and features, which allows the people to look towards the Personal Loans, especially during the emergency financial needs. The Personal Loans are the serious helping hands, especially when it’s needed the most. When no other loan types and no people can help you out, the Personal loans can prove to be most important financial help. While, the Personal Loans may not be so useful and so attractive when you look towards the tax exemption aspect, but considering that the Personal Loans offers you with the money, which you want to spend on your own life and in the way, you like, there no better options left with.

Personal Loans come with easy accessibility

It’s the easy accessibility and lot of features, which make the Personal Loans quite attractive. With no documentation of any sorts required, there are several benefits offered to the people looking for the instant money requirements.

Enough Reasons to avail Personal Loans

There are enough reasons for the people to seek for the Personal Loans, and whatever the tax exemptions, the Personal Loans offer to the people in the field of home renovation, business purpose, and for buying asset, it’s just ‘icing on the cake’. Furthermore, if you are looking for the Personal Loan, try to get the best rate of interest Personal Loan, which can help you in accomplishing your tasks by paying the minimum additional amount being paid as interest.

The demand for the Personal Loans has been on the rise, and people are looking towards it to meet their goals and complete their several needs and demands of the life. The Personal Loans offer you the quick money to utilize and help you in completing your requirements.

With the better strategy, you can avail your Personal Loan at a really attractive rate of interest. Improve your CIBIL Score, in order to get more varied deals and offers from different banks and to get the best rate of interest Personal Loan. With the strategic expenditure of your Personal Loan amount, you can even seek for the tax exemption in various cases, which are discussed above in the article.

Not many people are aware of the tax benefits, which they can avail on the Personal Loan. The only need is to spend the money very responsibility and keep the documents pertaining to the expenses, so that you can furnish them, when needed. Any personal loan doesn’t come directly under the tax benefits, but it depends on how a person spends the money, can leverage you the benefit for the tax exemption of the Personal Loan.

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Author: Poonam Dambare

Poonam Dambare

Member since: Aug 24, 2018
Published articles: 47

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