How to Get Personal Loan Tax Benefits

Do you ever wonder why you have to pay taxes on your money? A tax is an additional fee charged on services. All income is taxed accordingly, whether you make it by working or from somewhere else. Everyone looks forward to saving much on taxes, and a personal loan can be of great help in this.

Does this mean you don’t have to worry about paying taxes on your loan? Well, no. While getting a personal loan might not cost much in the long run, it’s still something that should be avoided if possible. After all, the more you borrow, the higher your chances of falling into debt again and again.

Are Personal Loans Taxable?

A personal loan is not part of your income. So, it does not attract income tax when borrowed from a bank or NBFC. But if you take a loan from an unregistered source, it might be counted as a source of income. 

This is why it's important to get the loan from a trusted and recognised lender like lendingplate. It helps avoid any tax confusion or future problems with income records. You also need to keep proof of how you use the loan if you want to claim personal loan tax benefits later.

Why take a Personal Loan if there's no Tax Benefit?

People still take personal loans even if there's no tax benefit on personal loan India. 

1. Emergency medical expenses -A personal loan helps cover sudden medical bills that need quick payment without waiting for claims or insurance approval.

2. Weddings or festivals -People use loans to fund events without draining their savings. It is especially when there's not enough time to plan finances.

3. Buying gadgets or consumer goods - Loans let people buy necessary items like laptops or appliances on time without using credit cards or paying interest.

Know What Tax Benefits You Have

Before applying for a personal loan tax benefits, you need to check out what benefits are available. Many tax law changes over the years have expanded the tax benefits that some people have. However, some haven’t received the same benefit. Remember that certain deductions and tax credits are generally available only to people with a certain income.

Benefits of Tax Benefits of Personal Loan

Using a loan smartly can help you lower your taxes. Personal loan tax benefits are available if the money is used in certain ways, not for daily or personal expenses.

Is there any tax benefit on personal loan? To claim tax benefits, use the loan for a valid reason like education, business, or home repair. Save all documents that prove the usage, such as invoices or bills. At the time of filing taxes, use the correct section. Get your loan only from approved lenders like lendingplate to avoid problems with tax claims. Only the interest paid can be claimed, not the full loan amount.

1. Interest Paid on Personal Loan -Interest on a personal loan used for home renovation or education can be claimed under Section 24(b) or Section 80E. You may get up to ₹30,000 deduction for home work or full interest for education loans.

2. Loan for Business Purposes -If the loan helps your business grow, the interest amount may be claimed as an expense under Section 36(1)(iii). There is no limit on this. You just need to prove the loan helped your business.

3. Loan Used for Property Work - If used to improve property you already own, the interest rate may be claimed. The property should not be bought with a loan. It should be only for repairs or construction.

How Much of the Personal Loan Amount is Taxable?

An income tax is basically levied on earned income, and the personal loan amount is never part of your income, hence it doesn't come under the income tax slab. However, this applies only when you take a loan from a bank or recognized NBFC. But if you take a loan from any family member, it may be considered part of your income and taxed accordingly by the government.

How to Get Personal Loan Tax Benefits?

Personal loans are considered riskier than secured loans because the loans are unsecured, which raises the concern of a higher interest rate. However, they are a popular option in many situations because they are simple to apply for and because you may use the amount for any reason you want.

Personal loans are non-taxable, which means there are no tax breaks. In addition, the personal loan amount is not part of your income or salary structure, so one cannot file federal income tax returns on the same. One does not need to worry about paying income taxes with a personal loan.

To qualify for a personal loan, you must always reach out to a legitimate lender, as an undefined income linked to a loan may be considered as income.

You may also read this: Secured and unsecured loans

These are a few examples:

Home Renovation Loans

If you desire to buy a new house or remodel an existing one using personal loan money, you may not claim personal loan tax exemption for a salaried person. However, the home loan or home renovation loan you may have taken out to purchase a house is undoubtedly tax-free. You may claim deductions of up to a certain amount if you own or live in a fully paid-up house. If you rent a home, the interest on your loan may be deducted from your taxable income. Record how the money was utilized to claim the tax break.

Business Loans

Business loans must be used for the company's business purposes only. An amount up to which term loans for business are classified are excluded from taxes on personal loans for business or unsecured business loans. There are no tax benefits on personal loans for business or unsecured business loans.

Loans to Purchase Personal Assets

You may also obtain income-producing or investing assets like shares, gold, jewelry, cars, two- wheelers, or non-residential house property besides residential property. If you need money for any of these things, apply for the correct product to get the tax benefits for the same. However, personal loans for these purposes are not eligible for tax credits.

How to Check Personal Loan Eligibility?

A personal loan eligibility calculator can calculate your loan eligibility. Your income, credit history, employment history, and repayment capacity all play a role in determining your loan amount. The result you get is instantly yours. You can find out how much loan you are eligible for using a personal loan eligibility calculator. Other factors to consider include location, age, monthly income, and any debts you might be paying.

How to Maximise your Tax Savings with Personal Loans?

1. Plan Your Loan Use Wisely -Choose a purpose that qualifies for personal loan tax benefits, like education, business, or home repair. Never use the amount for personal spending.

2. Keep Proof of Usage Ready -Save documents like invoices and bank statements. These help prove your loan was used in a way that allows you to claim deductions.

3. Talk to a Tax Expert - A professional can explain: can I claim tax benefit on personal loan & guide you on the right way to show it in your return.

Tax Consequences of Getting a Personal Loan

Remember that getting a personal loan is different from taking out a traditional one. Instead of paying interest on a credit card, you’re paying tax on the amount borrowed. The federal tax consequences of getting a personal loan are complicated, but the short version is that you’re responsible for paying all federal taxes due on the full amount of the loan and state taxes in the state where the loan was obtained. If you don’t pay off your loan on time, the lender can legally take the l from your account and give it to the government, which can then take that money and put it toward your tax bill.

Conclusion

Taxation is a very broad term, and having complete knowledge of the same is very important. Look for a money lender like lendingplate that can help you by providing complete knowledge about the tax advantages of personal loans. At times, getting a personal loan can be expensive and time-consuming. You’ll have to fill out a few forms and pay a small fee to get a personal loan tax benefit. The benefit is that getting a personal loan can cost almost nothing upfront, and the interest is tax-free. Remember that getting a personal loan is different from taking out a traditional one.

Frequently Asked Questions (FAQs)

Q.1. Is there any tax benefit on personal loan?

Does personal loan have tax benefit? It depends on how you use the loan. If it's for business, home renovation or education, you can claim benefits. Otherwise, loans used for personal needs don't qualify.

Q.2. What is the deduction of 80E?

Section 80E offers a deduction on the interest paid for education loans. It helps lower taxable income. This section applies only when the loan is used for higher education purposes.

Q.3. How much ITR is required for a personal loan?

Lenders like lendingplate usually require you to have a monthly income above ₹20,000 and at least one year of filed ITR. It confirms your repayment ability.

Q.4. Is TDS applicable on personal loans?

TDS is not applied on loans from banks or NBFCs. But if you pay interest to a private lender, TDS may apply as per the tax laws in force.It covers interest earned on recurring deposits or unsecured loans (or fixed deposits), etc.

Q.5. Which loans enjoy exemptions from income tax?

Loans for education under Section 80E & home loans under Sections 24(b)&80C (even some business loans qualify for tax exemptions). Personal loans do not always apply.