Taxes are certain! While you can’t ignore them, you can definitely save. Did you know that you can save taxes even when you borrow money? The interest that you pay on a personal loan can be deducted from your taxable income in some cases.
Personal loans can be availed to meet various needs. These may include a family vacation, wedding or education-related expenditures, unforeseen medical expenses, etc. Such loans are also sought to tackle emergencies like heavy losses in business. However, you are eligible to claim a tax deduction only if you avail a personal loan in the following cases:
A loan taken for investing in business
If you avail a personal loan and use the borrowed money for your business venture, then the interest paid on the loan amount can be shown as an expense and can be reduced from your profits. Lesser profits mean lesser tax. Thus, in such cases, you can bring down your tax liability to a great extent.
A loan taken for investing in residential property
Under Section 24 of the Income Tax Act, 1961, you can get tax benefits if you have invested the loan amount into buying, constructing or renovating a residential property. The interest that you pay on such a loan can be claimed as a deduction up to Rs. 200,000.
However, to be able to deduct the amount from your taxable income, you will need a certificate from your lender stating that the loan was actually used for one of the three purposes mentioned above. Moreover, you will be eligible to claim a tax deduction in such a case only if you are the owner of the property.
A loan taken for investing in assets
If you have borrowed money to purchase jewelry, commercial property, shares, stocks, and other similar assets, then you are entitled to certain tax benefits. The interest that you pay on such a loan can be claimed as a deduction.
However, it is important to know that this will not be possible in the same year in which you avail the loan. Instead, the interest amount is added to the cost of acquisition of the asset. This, in turn, reduces your capital gains, and thus, your capital gains tax liability.
Summing it up
A personal loan not only makes achieving goals easier but also helps you save tax. However, you can claim a tax deduction only in certain cases. Also, tax benefits will be granted only on the interest that accrues on your loan amount and not on the principal amount that you borrow.
A personal loan is an ideal way to fulfill an expensive need or meet sudden expenses. With Tata Capital, you can borrow up to Rs. 25 lakhs at affordable personal loan interest rates. With a personal loan calculator, you can easily figure out your monthly installment amount. Check your loan eligibility today!
