3 Little-Known Ways of Saving Tax with Instant Personal Loan in India - Loan Trivia

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Tuesday, 17 December 2019

3 Little-Known Ways of Saving Tax with Instant Personal Loan in India


Instant personal loans like the Bajaj Finserv Personal Loan offer you quick approvals and speedy financing, helping you meet urgent financial goals be it funding overseas travel, family wedding, or child’s education. What’s more, you get access to a large sum, up to Rs.25 lakh, on a collateral-free basis. Further, since a personal loan does not constitute a part of your income in your ITR, it is not taxable individually. However, you can save more by claiming tax benefits on a personal loan. Even though the Income Tax Act does not specify a particular deduction for a personal loan, you can get tax benefits based upon the purpose you use your loan for.

Here are 3 little-known tax benefits on a personal loan you should know about.

When you invest the funds in business

The first instance in which you can claim personal loan tax benefits is when you invest the funds in the business. Here, you can claim the interest component of your personal loan as a business expense. What’s more, there is no limit on the maximum amount you can claim. By claiming the interest you repay on the loan as a business expense, you reduce your overall tax liability and in return also reduce your net taxable profits.

When you use the amount to buy/construct a residential property

You can also avail of personal loan tax benefits by using the loan amount to buy or construct a new house. Here, you can claim a deduction under Section 24 of the Income Tax Act. This section specifies deductions pertaining to the interest component of your loan. It is important to remember that in order to claim tax benefits on a personal loan through this section, you should also be the owner of the house.

The deduction is capped at Rs.2 lakh for self-occupied properties. In the case of a let-out house, there is no limit on the maximum amount that you can claim. Normally, one associates Section 24’s tax benefits with a home loan. However, the section itself does not differentiate between loans, thus making it possible for you to obtain personal loan tax benefits when you use the loan amount to purchase, construct, renovate or repair your home. 

When you use the amount to invest in assets

A third case wherein you can obtain personal loan tax benefits is when you use the finances to buy assets such as jewellery, shares, certain stocks, or another asset not including property. Here, the interest you pay goes towards the cost of acquisition of the asset. The deduction cannot be claimed in the year in which you pay interest. However, you can claim personal loan tax benefits in the year in which you sell the asset. Since the interest is added to the cost of acquisition, your capital gains when selling the asset are reduced and so is your overall tax liability.

The answer to the question, ‘is a personal loan taxable?’, is no. This is because when you avail a loan from a legal source, the amount does not form a part of your income in your ITR. Nevertheless, you can go further and claim personal loan tax benefits when you use the finances in business, to buy or construct a real estate property or to purchase assets.

Now that you know how to avail tax benefits on a personal loan, get a loan that’s a perfect match for your finances by using the personal loan eligibility calculator in India. Further, plan for hassle-free repayment by picking from a flexible tenor of 12 to 60 months and using the EMI calculator to know your monthly cost. 

To enjoy money in the bank in 24 hours and instant approval through a tailored loan offering,  check your pre-approved personal loan offer from Bajaj Finserv.

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