A personal loan can come to your aid for various purposes. Whether it’s for education, marriage, medical expenses, home renovation or any other expense, you can avail a personal loan if there is a dearth of funds. Since it is an unsecured loan, there is no necessity for you to present any collateral in order to avail the loan. Therefore, the rate of interest for a personal loan is usually higher than any secured loan.

Are personal loans taxable?
The Income Tax Act of India allows for a tax exemption on an education loan or a home loan. However, a personal loan does not carry the same benefits. But under certain circumstances, you can avail tax benefits on a personal loan. Depending on the use of the funds, you can be exempted.
  1. Section 24 of the Income Tax Act states that if the loan amount is used for construction, renovation or purchasing a property then the interest paid can be claimed as an exemption from your taxable income. There is a limit of up to INR 2 lakhs on the interest paid.
  2. Another circumstance where you can qualify for a tax exemption is when you take a personal loan for business. If you plan on using the funds to invest in your business, the interest paid can be claimed as an exemption. There is no limit on this
  3. You can also be exempted from tax if you use the loan amount to invest in any other asset like jewellery, shares or any non-residential property since the interest amount gets added to the acquisition cost which reduces the capital gains on the asset at the time of its sale. Hence, the interest amount can be exempted from tax.
The important thing to note is that in order to enjoy the tax benefits, you must submit adequate proof to income tax regarding the usage of the funds. Personal loans otherwise are not considered taxable as it is not an income. Keep a copy of all the important documents with you as you might need to show them as proof during an assessment by the income tax department.

Learn more about your Personal Loan Eligibility here.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

Trending Articles

Latest Articles

personal-finance
personal-finance

Facing a Medical Emergency? 4 Reasons Personal Loan May Be the Right Choice

Read More
Posted on 07 February 2020
personal-finance
personal-finance

How to Qualify for a Personal Loan?

Read More
Posted on 05 February 2020
personal-finance
personal-finance

How to Track your Personal Loan Status?

Read More
Posted on 05 February 2020