As per a report from the Income Tax Department, only 3% of the population earns more than Rs.5 lakh per annum and consequently qualify as taxpayers. This meagre figure clearly indicates that a large section of individuals hides their actual taxable income to skip tax liabilities.
Nonetheless, this trend is now gradually changing.
According to the latest data released by the Income Tax Department of India, for the financial year 2020-21, more than 5.16 crore ITR was filed till 6th January 2021.
The number of ITR filing was 3.63 crore till 21st August 2019.
This data suggests that more individuals are taking tax structures and the adjacent rules more seriously. This number can further improve if individuals are more aware of different provisions pertaining to tax benefits. For instance, borrowers can avail tax benefit on personal loan while using the funds for various purposes.
What are the tax benefits on personal loan in India?
Keep in mind that a personal loan does not constitute a part of income, and thus, is not taxed. Since borrowers can use the funds without any end-use restrictions, they can claim tax benefit on personal loan under the Income Tax Act when the funds are channelled towards specific avenues.
Following are some of the instances where a personal loan can provide you with tax benefits.
Spending on residential property
Individuals aiming to purchase or renovate a residential property using an online personal loan can avail a tax exemption on interest payment under Article 24(b).
If the owner of the concerned property self-occupies it, he/she can avail a tax benefit of up to Rs.2 lakh on the interest payment that goes towards the repayment of the loan. Otherwise, if the property is let-out, there would be no cap on the exemption amount.
In that case, borrowers need to maintain a checklist of documents, substantiating the usage of a personal loan for this purpose.
Purchasing any asset
Individuals can utilise the funds from a personal loan to invest in other assets as well. Due to this, these advances have become extremely popular in recent times.
The personal loan segment witnessed a 11.2% y-o-y hike in July 2020, amounting to Rs.25.31 trillion, RBI revealed.
Borrowers can utilise the credit to purchase a non-residential property like shares, gold, etc. However, they cannot claim tax benefit on personal loan immediately in that year.
Instead, the interest paid will be considered as the cost of acquisition of that particular asset.
Individuals can also use an online personal loan tax calculator to assess the tax rebate they will be eligible for.
Other benefits of availing a personal loan
Besides enjoying tax benefits on personal loans, this particular credit product also offers a myriad of advantages that borrowers can consider. For instance, individuals can utilise funds to mitigate any financial requirement like medical, travel, education, wedding expenses, etc. However, they need to know how to find the right personal loan for them in that case.
Moreover, selected financial institutions like Bajaj Finserv extend several facilities like instant approval, funds up to Rs.25 lakh with minimal documents, Flexi loan facilities, and many more.
This lending institution also provides pre-approved offers that make availing credits straightforward and less time-consuming. Such offers are available on various financial products like doorstep loans, business loans, credit cards, etc. You can check your pre-approved offer by entering your name and contact details.
These offers can expedite the loan application process and even allow borrowers to avail a personal loan without documents.
Thus, alongside tax benefits, individuals can utilise the amount from this advance to take care of any number of financial requirements and enjoy a host of benefits on the same.
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