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Tax Benefit on Personal Loan: How To Avail Income Tax Benefits On Personal Loan?

By Ektha Surana

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Updated on: Mar 17th, 2023

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4 min read

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As the name suggests, personal loans are available to meet one’s personal financial needs, be it for home renovation, investing in a business, dealing with an emergency medical situation, or covering the expenses of a wedding.  

These loans are unsecured, meaning that they don't require collateral. Therefore, they come at a comparatively higher interest rate. Additionally, personal loans usually have a short repayment term and low eligibility criteria, making them easy to obtain. Many individuals question whether there are any tax benefits associated with personal loans, and in this article, we'll address that query.

Tax Benefit On Personal Loan

No, there are no specific tax benefits on a personal loan. However, we have identified a few scenarios where you can claim tax benefits on a personal loan in India. The key factor in determining whether you can claim these benefits is the intended use of the loan amount. You can claim these benefits as long as you can provide evidence that the funds were used for that specific purpose.

Home renovation: If you take a personal loan to renovate or repair your home, then you will be eligible for a tax deduction under Section 24(b) of the Income Tax Act. You can claim deductions of up to Rs. 30,000 per year on the interest paid on personal loan. 

Home purchase or construction: If you take a loan for purchase or construction of a house, you can claim a deduction of the interest paid on such loan. If the house is used for self-occupation, you can claim an interest deduction of up to Rs 2,00,000. If you let it out on rent, then the entire interest amount qualifies for a tax deduction. 

Education expenses: If you take a personal loan to fund the education of yourself or your spouse or children, then you can claim tax deductions under Section 80E. This deduction can be claimed for a maximum of eight years or until the loan is repaid, whichever is earlier.

Starting a business: If you take a personal loan to start a business or invest in a business, you may be able to claim the interest paid as a business expense under Section 37 of the Income Tax Act. 

FAQs

Is personal loan covered under 80C?

Yes, personal loan availed for the purchase or construction of a house is covered under section 80C.  Interest payment qualifies for a deduction under section 24. However, the loan repayment is covered under section 80C. 

Can I claim tax relief on personal loan interest?

No, there is no specific tax relief on a personal loan. However, here are a few scenarios where you may be able to claim tax benefits on a personal loan:

  • Home renovation
  • Home purchase or construction
  • Education expenses
  • Starting a business

Which loans are exempted from income tax?

Home loans, education loans, loans on electric vehicles are a few loans which enjoy tax exemption.

Can I get a personal loan using my ITR as proof of income?

The specific documents needed for loan approval may vary among different lenders, and some may even offer personal loans without requesting an ITR.

About the Author

Multitasking between pouring myself coffees and poring over the ever-changing tax laws. Here, I've authored 100+ blogs on income tax and simplified complex income tax topics like the intimidating crypto tax rules, old vs new tax regime debate, changes in debt funds taxation, budget analysis and more. Some combinations I like- tax and content, finance & startups, technology & psychology, fitness & neuroscience. Read more

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