Gold Loan - What Are The Tax Benefits On Gold Loans?

Life can throw unexpected curveballs at any moment, leaving you in dire need of extra funds. Perhaps you're faced with an unforeseen medical emergency or a major repair that requires immediate attention. In such circumstances, you may not want to liquidate your assets, and a short-term loan could be the answer to your financial troubles.While Personal Loans and Gold Loans are both quick ways to acquire a short-term loan, many people tend to overlook the latter. However, gold loans offer several benefits over a personal loan , and today we'll explore one of the most significant advantages to help you make an informed decision.When you're in need of quick cash, a Gold Loan or Loan backed by Gold might be the answer to your financial troubles. By pledging your gold holdings as collateral, you can borrow money from a lender with ease. Lenders typically lend money to borrowers with gold holdings of 18-24 carats, and you can expect to receive a loan of up to 75-90% of the market value of your holdings. The interest rates on Gold Loans vary from 10-24% depending on the borrower's creditworthiness.So, why should you choose a Gold Loan over a Personal Loan? There are several compelling reasons:1) No Minimum Credit Score Required2) Lower Eligibility Criteria3) Lower Interest Rates* (Compared to Personal Loan with the same Credit Score)4) Lower Processing Fees5) Lower Prepayment ChargesWhile the many benefits of Gold Loans already make them an attractive option compared to Personal Loans, there's another advantage that often goes overlooked: tax benefits . This added advantage can help borrowers save more money in the long run.

1. Deduction on Repayment of Principal Amount of Home Loan under Section 80C

(A) If the borrower has taken up a Gold Loan for financing the purchase or construction of their house, they are eligible to claim a deduction of up to Rs 1.5 Lakh paid towards the repayment of the principal amount under the Section 80C of the Income Tax Act, 1961 of the Income Tax Act, 1961 i.e. only under the Old Tax Regime. If the loan is a joint gold loan, both borrowers can deduct up to Rs 1.5 Lakh each. Of course, this is applicable if the limit of Rs 1.5 Lakh is available and has not been used up to claim other expenses or investments. Also Read: Gold Investment Plans In India (B) If the borrower has taken up a gold loan for major repairs of their house, then also they are eligible to claim a deduction on the repayment of the principal amount of the gold loan taken for the same purpose under Section 80C up to Rs 1.5 Lakh.

2. Deduction of Interest Paid on Gold Loans towards Purchase of House under Section 24

Section 24 of the Income Tax Act allows the borrower of gold loans to claim the amount of interest paid towards the loan that is taken for the purpose of financing the purchase or construction of their house. The amount of deduction you can claim towards the interest portion of the gold loan is up to Rs. 2 Lakh if the loan is for a house that is considered as Self-Occupied. If the gold loan is a joint gold loan, both the co-borrowers can claim the deduction of up to Rs. 2 lakhs each towards the interest paid on the gold loan.If the gold loan was taken for a house that has been rented, the interest paid towards that loan will be considered as an expense and hence the borrower can claim the whole amount of interest as a deduction under Section 24.

3. Deduction towards Interest Paid under Section 80EE

The borrower of the gold loan is also eligible to claim a deduction towards interest paid on gold loans under Section 80EE of the Income Tax Act over and above the limit of up to Rs. 2 Lakh under Section 24. This deduction available under this section is up to Rs. 50,000 and is just for the interest portion paid towards the loan. To be eligible to claim the deduction, the loan must be up to Rs. 35 Lakhs only.The budget of 2019 also introduced an additional deduction under section 80EEA to further extend the tax benefits of deduction on Interest paid towards the loan repayment for an amount up to Rs. 1.50 Lakhs. This deduction is only available for the loans that are taken for affordable housing and only to those individuals who are first-time home buyers and that too only if they are not eligible for deduction under Section 80EE .

4. Deduction of Interest amount as Cost of Acquisition

If the borrower of a loan has used the gold loan for the purchase of assets like Equity, Bonds, or any assets other than property, the borrower can also claim the interest paid towards the gold loan as a cost of acquisition. This benefit will allow you to reduce your taxable capital gains and hence in a way help you cut your tax liability . However, the catch here is that you can claim this deduction only in the year that you sell the assets that you acquired using the gold loan. Let’s say you sold Bonds in the year 2023 which you had acquired back in 2015. In this case, you will only be able to claim the interest paid as acquisition cost in FY 22-23 and AY 23-24.All the benefits that we discussed till now were applicable to individuals but there’s one more tax benefit that is available for gold loans taken for business purposes.

5. Deduction of Interest amount as Business Expenses

If a borrower has taken up a gold loan for the purpose of financing their business activities like some capital expenditure or for day-to-day expenses, they can claim the interest paid towards the gold loan as a business expense and cut down on their tax liabilities. There is no limit for which you can claim the interest amount as a business expense.So these basically were all kinds of tax benefits that a borrower can enjoy if they have taken a gold loan. There might be a few other benefits as well which may or may not apply to everyone which is why they are not discussed here.