Not everyone has a cash reserve or enough savings at their disposal to tide over the unforeseen financial crisis. Some people need to seek the assistance of a personal loan to meet their personal financial needs. Now the thing about personal loans or any other kind of loan is that the bigger the amount the higher the tax levied on them but that shouldn’t be a deterring factor to avail loans at a time of financial distress because most financial institutions tend to offer attractive offers and flexible repayment options to the borrowers on their personal loan.
The cost of higher education, down payments, wedding expenses or any other personal expense, personal loans tend to cover all such expenses and at the same time are easy to repay back.
Under the Indian Income Tax Laws, reputed financial institutions tend to offer tax benefits to their borrowers on their various loan repayment options and based on special grounds. Let us find out which special grounds are deemed applicable for availing tax benefits on personal loan repayment options.
- Personal Loan for Business: When a borrower’s main objective to avail a personal loan is to put that amount into a business, they are deemed eligible for claiming a tax deduction on the accrued interest on their stipulated EMI.
- Personal Loan for purchasing assets: In the case, when a borrower avails a personal loan to purchase an asset in the form of shares, machinery, jewelry or others. The borrower can claim for a tax deduction. Such a tax deduction on assets would be permitted but not on the year of purchase but in the year of sale and will only be applicable on the interest portion of the personal loan. The repayment of the principal portion of the loan does not come under the benefit of tax deductions.
- The topic of tax benefit and construction or purchase of a new fixed asset like a house often tends to confuse the borrower in terms of their eligibility to avail a tax deduction. One thing that borrowers of a personal loan need to clarify is that in order to claim any tax deduction, the interest certificate is regarded as an important requirement. Financial institutions like banks and other registered N.B.F.Cs are equipped to issue their clients an interest certificate in case of home loans. The interest certificate issued by the financial institutions shows the sum of money that was invested for the purpose of housing and is further taken into consideration while calculating the Net Annual Value of the said property.
If you are planning to take a personal loan for meeting your personal expenses, don’t forget to claim the tax benefits that are applicable in your case and save a significant amount of money through tax deductions.