Online personal loans have been a great option to fulfil short-term as well as long-term goals. It is also considered one of the best ways to finance your personal needs. These are usually available for shorter periods as it has got a higher rate of interest. However, it is very easy to apply for a personal loan, and you can get it approved in a matter of a few minutes if and only all the documents you have provided are up to the mark.
It is a matter of fact that most of the individuals would not be aware of the tax benefits of personal loan. One can easily get tax benefits from the personal loan if it is used in a particular manner. The government of India facilitates tax benefits on the repayment of loans.
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As per the rules and regulations specified by the income tax department, there is no provision of direct tax benefits from the repayment of personal loan. If the personal loan has been availed in order to finance certain aspects where a tax deduction is allowed.
Here are some of the ways in which you can easily get tax benefits.
1. Capitalize in Business
If you invest personal loan in your business, then the interest paid can be termed as an expense. This expense can be shown to bring down the tax liability of the applicant. This will also reduce taxable profits.
2. Purchase/Construction of a Residential Property
If you have used the personal loan for construction or purchase of a residential property, then it is likely to get tax relaxation. The borrower can easily claim benefits for the repayments of interest. This comes under section 24 of the income tax act, 1961. The maximum deductible amount, in this case, is 200000 INR. However, if you want to get tax benefits, you would have to be the owner of the property. If the house is rented out to someone else, there is no cap of the same.
3. Investment in Assets
One more way of availing tax benefits from personal loans is by investing the loan amount received from the personal loan you have applied for in assets. If the loan is used in the purchase of some assets like non-residential property, jewellery and shares, stocks, etc., then the borrower can claim for a tax benefit in the year when all these are sold. However, the borrower cannot claim for a tax benefit in the same year of purchase. The tax benefit will only be applicable on the amount paid as interest and not on the principal amount.
If you have used personal loans for any other reason, then as per the rules and regulations of the income tax department, there will be no direct and indirect tax benefits.