Personal Loans are popular for meeting immediate financial needs. In addition to providing access to much-needed funds, Personal Loans offer tax benefits too. So to reduce the overall financial burden and meet urgent cash needs, there’s nothing better than Personal Loans. As not many of you might be aware of the tax benefits on Personal Loans, this guide will provide an overview of the tax benefits of Personal Loans and how to avail of them.
Tax Benefits on Personal Loans
Tax benefits are something provided by the government on your taxable income. So if you fall under the tax bracket and have borrowed Personal Loans, use them to your advantage.
Using Personal Loan tax exemption, you can reduce the overall tax liability. These tax benefits are essential to know about as it helps taxpayers save money.
One tax benefit on Personal Loan is the deduction on the interest paid. As per the Income Tax Act, 1961, borrowers are eligible to claim deductions on the interest amount of their Personal Loans under Section 24(b). This deduction is subject to a maximum of INR 2 Lakh. Eligibility Criteria for Availing Tax Benefits on Personal Loans
To avail a tax benefit on Personal Loan, you need to ensure you meet its eligibility. For instance, when you
apply for a Personal Loan with Hero FinCorp and use it for house construction or purchase, you might think you are eligible for the tax benefit. But that’s not enough, before claiming the tax benefit on Personal Loan, check the following:
- The purchased property should be self-occupied
- Both salaried and self-employed individuals are eligible to claim the benefit
- Only the primary borrower can avail the tax benefit on Personal Loan
- The loan amount must be used only to purchase, construct, or renovate the house
Also Read: Learn Everything About Personal Loan Disbursal Process Conditions for Claiming Tax Benefits on Personal Loans
Apart from meeting the eligibility criteria, there are specific conditions that as a taxpayer you should know about, and these are:
- After the loan approval, you’ll receive the Personal Loan disbursement letter from Hero FinCorp. So at the time of claiming the tax rebate on your Personal Loan, you need to attach the same with your tax filing form. This ensures you have an ongoing loan with the financial institution and are eligible to avail the tax rebate.
- Ensure the loan is used for home purchase/construction only as the deduction under Section 24(b) is allowed when the loan amount is used for this purpose.
- The tax benefit is available for only that portion of the interest that you’ve paid within that financial year. It means you won’t get a tax rebate on your to-be-paid interest amount.
Also Read: Income Tax Audits In India: Everything You Need To Know
How to Calculate Tax Benefits on Personal Loans?
To calculate the tax benefits on Personal Loans, you need to consider various factors:
- The first factor is the interest rate on the Personal Loan. The higher the interest rate, the more will be deducted from the paid interest amount. But do know that it won’t exceed the threshold of INR 2 Lakh.
- The second factor is the repayment tenure of the loan. The longer the tenure, the more will be the paid interest. So you can avail a higher tax rebate on your Personal Loan each financial year till the repayment ends.
- Check if you meet the criteria for rebate us 87A. This tax rebate reduces the income tax liability of the borrower. To claim the benefits of this ITR, ensure after Section 24(b) deduction, your taxable income does not exceed INR 5 Lakh. If that happens, your income tax liability becomes nil after claiming rebate us 87A.
- For example, an individual takes a Personal Loan of INR 5 Lakh for home renovation purposes, with an interest rate of 10% and a repayment tenure of five years. In that case, the interest paid on the loan would be INR 1,40,160. As per Section 24(b) of the Income Tax Act, the borrower can claim a maximum deduction of INR 2 Lakh on the interest paid. So in the first year of the tax payment, the individual has paid INR 39,975 on the loan interest. It means they’ll save INR 39,975 from their taxable income for that year.
Conclusion
Personal Loans offer significant tax benefits to borrowers, and it is essential to understand the eligibility criteria, conditions and the calculation process of the same. This way, you can ensure seamless claiming of tax deductions.
With our Personal Loans meet your financial needs and save on taxes under the tax benefits mentioned above. Hero FinCorp Personal Loans are an excellent way to meet financial needs while saving on yearly taxes.
