Taxes cannot be levied on your personal loan amount because it is not considered a part of your income. You cannot keep the money that you take as a personal borrowing or loan. It has to be repaid and therefore, it cannot come out of your income. However, there might be some tax implication if the loan you are taking is coming from a family member or a friend. If the loan has not been given by a recognizable financial institution, the loan money will be viewed as your personal income.
How can you avail tax benefits on personal loan?
Under the Indian Income Tax Act, there cannot be any tax deduction on personal loans. However, there are certain purposes for which you can avail tax benefit on personal loan.
To expand or invest in your business
If you invest the loan amount in your business in order to increase your revenue, you might be exempted from taxation up to a certain degree.
To renovate or expand your house
Under 24(b) of the Income Tax Act of 1961, one can avail tax benefits if they take a personal loan to renovate or expand their house. Tax deduction is eligible up to Rs.2,00,000 of the loan amount. However, the person taking out the loan has to be the owner of the house.
To buy an asset
If you are taking out a personal loan to buy or invest in assets, like jewellery, stocks or non-property related valuable purchases, you may avail tax benefit on personal loan. However, the tax deduction will be applied to the interest amount and not the principle loan amount. You cannot claim the tax deduction on the same year you pay off the interest either.
If there is no tax benefit, why take a personal loan?
Even though there are no tax benefits on personal loans, there might be a number of incentives for taking out a personal loan. Some of the benefits that you may avail if you take a personal loan are here.
No collateral needed
One of the most attractive things about personal loans is that you do not need to have any collateral for taking out a personal loan. You can take a personal loan without mortgaging your property or hypothecating any of your valuable assets. This allows a little more of a breathing room on the borrower’s part.
In order to take out a personal loan, you do not need to show extensive documentation mainly because it does not require any collateral. A person applying for a personal loan only needs to show their bank statements and KYC information to the financial institution issuing the loan. Therefore, it takes much less time to process the loan and make the money available to you.
Financing up to 25 lakhs
You can also avail personal finance quite easily in case of an emergency. A person with a steady income and good credit scores can get up to Rs. 25 lakhs of personal finance.
Relaxed personal loan eligibility
Personal loan eligibility is quite relaxed and the criteria cover a wide spectrum of Indian citizens. It is issued to individuals who have a steady salary as well as those who are self -employed. If you are an Indian citizen belonging to the age group of 22 to 58 and have a steady income above Rs. 15,000, you can easily apply for a personal loan.
These are all the basic information that you need to know if you are planning to apply for a personal loan. If you have a steady income, it is not a difficult task to get one of these. We wish you all the best for your future endeavours.