Which Loans Have Tax Benefits

Many people take loans to get through a short-term financial crisis, for funding a child's education or for meeting long term goals such as buying a house and getting tax benefits for the same.

In this article, we will discuss which loans have tax benefits in India. 

Education Loan Tax Benefit

Education loan tax benefit India is provided under Section 80E of the Income Tax Act 1961. This section allows deduction of interest paid on loans taken for higher education whether it’s for yourself, your spouse or your kids. 

The best part is the education loan tax benefit limit. There is no upper limit when it comes to the education loan tax benefit limit. However it is important to note that the education loan tax benefit is only valid for 8 years max. starting from the year you start paying the education loan interest.

Home Loan Tax Benefit

Home loan tax benefit Section 24(b) of the Income Tax Act 1961 allows individuals to claim deduction on the interest paid on your home loan. The maximum home loan tax benefit limit for self-acquired property is up to Rs. 2 lakhs. Home Loan Tax benefit under Section 24(b) is also applicable if you want to claim home loan tax benefit for second home. 

There is also a home loan tax benefit for husband and wife. If you have a housing loan where both husband and wife contribute to such housing loan repayment, then both of them can claim a deduction upto Rs 2. lakhs under Section 24(b). You must know all the important aspects of this section so that you can make the most of the benefits.

Car Loan Tax Benefit

The tax benefit on car loan is provided under Car Loan Tax Benefit Section 80EEB of the Income Tax Act 1961. This section does not allow car loan tax benefit for salaried employees. However, self-employed individuals such as lawyers, architects, doctors, CA or business owners get tax benefit on car loan under Section 80EEB for purchasing a car meant for business purposes. 

The reason why there is no tax benefit for salaried employees under this section is that they purchase the car for personal use. However, this section allows tax benefit on car loan for cars which are purchased for commercial purposes. It is important to note that car loan tax benefit is a one time benefit.

Personal Loan Tax Benefit

If you have ever wondered, “does personal loan have tax benefit?” then the answer is yes, personal loan has tax benefit. However, not directly. Interest paid on a personal loan utilized for business investments may be deducted from your taxable income by claiming it as a business cost.

Since the interest paid on a personal loan increases the acquisition cost, it can also offer tax benefits when used to purchase jewelry, shares, or non-residential real estate. As a result, there is a lower capital gains tax on sales.

Individuals who have obtained personal loans from banks or other financial establishments could also qualify for tax benefits and deductions on the interest paid on the loan principal. Nevertheless, these deductions cannot be offset by the loan's principal.

Tax deductions for personal loans are only permitted under the following conditions:

• For Home improvement: A personal loan which is availed for home improvement is eligible for tax benefit of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act 1961. So, if you’re considering a loan for your home’s renovation or improvement, you can avail tax deduction on the personal loan.
• For Residential Property Purchase/Construction: Section 24 of the Income Tax Act 1961 allows you to claim tax deductions of up to Rs 2 lakh in a financial year if you are taking out a personal loan to buy or renovate a residential property. Nevertheless, this advantage can only be claimed by the property owner. 
• For Business-related Expense: If the personal loan’s proceeds are invested in business, the loan’s business part can be treated as a business expense. This enables business owners to decrease their net taxable profits and therefore, reduces the income tax burden.
• For Buying Asset: If the loan money is used to purchase assets like jewelry, stocks, shares, non-residential property, etc, then the personal loan can be used for tax exemption. 

Conclusion

Repayment of loans can be exhausting as you have to repay a fixed amount of money every month for years. However, when one decides to avail loans which have tax benefits, their tax burden gets reduced. Before obtaining a loan, remember that it is a big commitment and you must consider all the pros and cons beforehand. The tax benefits on loans can be claimed while filing ITR. If you need assistance in filing your ITR in a smooth and hassle free manner, get in touch with Registrationwala.

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.