Generally, personal loans are not taxable, since the loan amount is not considered as a part of your income when you’re filing income tax returns. This means you don’t’ need to pay any income tax on personal loans.
Section 24(b) of the income tax Act, 1961, allows for a tax rebate on personal loans if the amount is used for certain purposes like the home renovation or improvement. In this case, the interest rate paid on personal loan repayment up to Rs.30,000 can be claimed as a deduction from the total taxable income.
Personal loans are unsecured loans that can be availed without any collateral. It is the most popular loan type used for various personal purposes like wedding expenses, home renovation, and education or for paying medical bills.
Since there is no particular mention for a personal loan in the Indian Income Tax Act, the purpose for which a personal loan was availed will be taken into consideration in order to grant tax deductions for a personal loan.
Although personal loans are not taxable, you can enjoy the benefit of tax deduction in a personal loan, if you put the loan amount to specific end-use.
Listed below are the three cases to get tax benefits on a personal loan:
Loan for home improvement or renovation –
Tax rebate on a personal loan is possible if the loan amount has been utilized to meet expenses related to home improvement or renovation while reducing your tax liability effectively. The sanctioned loan amount should either be used to buy or improve a residential property and then you are eligible for tax deductions for the interest paid within the financial year.
Loan for business growth –
Also you are eligible for tax exemption if the instant personal loan amount has been used for expanding a business without any difficulty. You can claim the interest paid by investing in your business. This is especially important if you are a self-employed individual of a small business. There is no maximum deduction for such a claim and it merely depends on the interest payment for that financial year.
Loan for other assets –
Other income-producing assets are many like investing in shares, gold jewelry, cars or two-wheelers. If you are taking a personal loan to purchase any of these products, you are liable for tax benefits against the same. Interest paid on the same is considered the cost of asset achievement.
Personal loan Eligibility and Documentation process:
- AADHAR CARD
- PAN CARD
- ELECTRICITY BILL – (LATEST)
- BANK STATEMENT – MINIMUM 3 MONTHS LATEST STATEMENT
- PHOTOGRAPH – COLOUR – (LATEST) – 2
- IF YOU ARE A SALARIED EMPLOYEE, THEN SALARY SHOULD SHOW IN BANK STATEMENT OTHERWISE SALARY SLIP REQUIRED
- IF YOU OWN A BUSINESS, THEN RECENT 1 or 2 year’s ITR COPY REQUIRED
- CHEQUES MINIMUM – 3/E – NACH MANDATE Coming soon