Mumbai, October 13: There are many benefits of taking a personal loan. You can meet your urgent monetary need and repay later in installments is the first benefit. You can also fund your daughter/son’s marriage or pay her /his school fee by taking a personal loan. A personal loan provides funds irrespective of the end-use. These are unsecured loans given by banks to meet personal needs. One can avail of a personal loan based on their current earnings, credit history and so on. This helps in meeting any shortfall of funds for education purposes, household repairs or any other purpose.
Archit Gupta, founder and CEO, Cleartax, said, “While applying for a personal loan, taxpayers want to know whether they can claim any tax benefits. The tax benefits available on a personal loan depend on the end-use of the loan.”
Here’s how you can avail of tax benefits on a personal loan:
Personal loans used for house repairs and construction
In a case where you use your personal loan to buy or construct a house property, you can claim a deduction for interest paid on the loan. “An interest deduction up to Rs 2 lakh a year is available in the case of purchase or construction of a house. In case the house is let out on rent, the entire interest paid can be claimed as a deduction, however, a maximum of Rs 2 lakh can be set off in the same financial year against any other income,” Gupta said. You can carry forward the balance loss if any for the next eight years. In the case of personal loan used for repairs or reconstruction of a house, you can claim an interest deduction up to Rs 30,000 a year.
“However, there is no tax deduction towards principal repayments of the personal loan used for purchase or construction or repairs or reconstruction of house property,” he said.
Personal loans used for business purposes
You may use your personal loan to meet your business cash needs. You may use it to buy a business asset or to fund your working capital needs. “In such cases, you can claim a deduction for interest paid on the loan against your business revenues. This is in addition to the deduction for depreciation you can claim on the assets purchased,” Gupta explained.
Keep your credit record clean
Banks generally check your repayment track record while approving the personal loan. Hence, it is essential that you maintain a good repayment track record with respect to loans and credit card bills. Amongst other considerations, you must check for the quantum of the loan amount, flexibility on repayments of the loan and faster processing of the personal loan.