Personal loans are considered the easiest loan to avail of. This is because a lender asks for only a few details to provide personal loans. Another best part is the freedom of using loan credit. Although unsecured loans like personal loans are more expensive than secured loans, still preferred because of easy accessibility and lesser restrictions. Here is the post for a closer look at tax benefit on personal loans.
Are personal loans taxable?
A personal loan is not considered under the purview of taxation as it is not a part of your income. You do not own loan money as you do with your salary, profit, or returns on investments. You are liable to repay the loan and, therefore, it is considered an expense, and there is no income tax levied on personal loans. However, it is applicable to a personal loan taken from a reputed lender like non-banking finance companies (NBFCs) or bank.
Personal loan tax deduction
There is no specific deduction for personal loans. However, personal loan borrowers can take advantage of tax deductions based on the end-use of loan credit under the Income Tax Act of 1961.
If you have used the loan credit for the below mentioned specific purpose, you can avail of personal loan tax benefits:
- For business expansion
In this case, the interest paid can be claimed as an expense. This will reduce the tax liability of the business as net taxable profits will decrease due to such expenses. There is no maximum cap specified for the interest to be considered as an expense. You must have proper documents to prove the end-use of the loan amount.
- For house improvement or renovation
If you have utilized the loan credit towards home renovation, you can take advantage of the tax rebate under Section 24(b), Income Tax Act of 1961. The maximum interest amount capped is Rs. 30,000.
- For the purchase of other assets
If you have invested the loan amount in non-residential property, gold, stocks etc., you can claim a tax deduction on the interest paid on the loan. The interest paid will be considered as the cost of acquisition of the asset.
- For educational expenses
You can utilize personal loan finance to meet expenses involved in higher education. The deduction is available for eight years or until loan repayment, whichever is earlier.
Benefits of a Personal Loan
Personal finance carries several points on its positive side. Some of these are mentioned below:
Avail finance without collateral
If you cannot mortgage any asset, a personal loan can provide you with monetary support in the hour of need. Lenders do not require any asset as collateral against a personal loan.
Quick processing with minimal documentation
A personal loan is available with minimal paperwork for processing, as an unsecured loan does not involve many formalities. You only need to submit your KYC documents and savings account statements, thus, faster loan processing.
High loan amount of up to 25 lakhs
Through a personal loan, you even meet your large expenses. If you have maintained a high credit score, you can raise a substantial amount that can go up to Rs. 25 lakhs. The lender will need proof of your steady income source as well.
Easy to meet the eligibility
- The applicant’s age should be between 20-60 years.
- The applicant must be a resident of India.
- The applicant should have a credit score of 750+.
- Personal loans are available for every salaried individual in India.
- The minimum salary for a personal loan depends on your city of residence. Most lenders prefer Rs.25,000 monthly salary. However, credit score and salary limits vary from lender to lender. If you have maintained a high credit score, you can negotiate on eligibility criteria.
Thus, a personal loan is an excellent medium of financing numerous expenses at easy terms and conditions without collateral. Simply put your basic details, name, PAN and contact details to check for pre-approved personal loan offers with renowned lenders like Bajaj Finserv. Besides personal loans, they provide pre-approved offers on home loans, and credit cards also.