Personal Loan Tax Benefits: How to Claim and Save

Getting instant funds on meeting simple terms coupled with personal loan tax benefits makes this option a popular choice. This unsecured financing solution helps you fulfil personal requirements like:

• Wedding
• Vacation
• Education Expenses
• Buying a car
• Making a down payment for a home

Personal loans are the quickest way to arrange funds when you are in need. Furthermore, understanding the personal loan tax benefits and how to claim them can help you save more on your repayment. Read on for comprehensive knowledge to make a smart decision before borrowing.

Methods to Claim Tax Benefits on Your Loan

In most cases, you cannot claim a deduction on your personal loan as it is not considered taxable income. This includes the principal amount, interest paid and any associated fees and charges. 

However, you can get deductions when you need to submit proof that these funds have been used for:

• Buying a house
• Construction of the house
• Renovating your home
• Educational purposes
• Invested in assets for a business

Only the final use of the loan amount will decide whether the tax should be levied. The loan source will also decide whether the principal amount of your personal loan is taxable or non-taxable. Thus, you can only claim deduction if you apply for a loan from:

• A bank
• An NBFC
• Legally approved financial institution
• Fasted Instant loan app of a registered lender

In these cases, your personal loan’s interest will be measured as a liability and is not taxable. However, if you are borrowing from a friend or any other non-professional lending source, it will be considered as your income. In this case, you have to add this amount to your net income and pay the tax as per the applicable rate. 

Tax Benefits on a Personal Loan: Three Ways to Qualify

As mentioned above, certain conditions and the final use of the loan amount make it a tax-free borrowing option. Such circumstances are described below.

• Personal Loan for Business Usage

If you invest the loan money in your business, the interest on that loan becomes a liability for that business. Thus, paying the interest will be considered an expense of the business. This means the interest amount will be deducted from the business profit. In this case, the entire interest amount will be tax-deductible.

• Personal Loan for Buying or Construction of a Residential Property

Under section 24(b) of the Income Tax Act, homeowners are entitled to “Deductions from Income from House Property”. If you use your loan amount for your property, then there will be added tax benefits on the interest. You can use it for:

• Home Renovation
• Home Purchase
• Home Construction

If you invest in your residential property, you can claim an interest deduction of up to ₹2 lakhs under section 24(b). You will need to present the required documents to prove the usage. 

• Personal Loan For Educational Expenses

Say you have borrowed funds and used them to finance the education of your children, your spouse or yourself. In these cases, the interest paid on education loan used for education is considered tax-exempt under section 80E. 

You can also acquire these personal loan tax benefits if you opt for Fibe Instant Cash Loan and access funds of up to ₹5 lakhs. Meet simple eligibility criteria and submit the necessary documents to get your personal loan online. Fibe’s processes are simple, so you can complete the application within a few clicks. To get started, download our Personal Loan App or register on our website. 

FAQs on Personal Loan Tax Benefits

Which loans are eligible for tax exemption?

Along with personal loans for certain expenses, education, home and business loans are also eligible for tax exemptions.

How do I get a loan on my income tax return?

You can get a personal loan with your ITR as income proof. All you need to do is submit your ITR copies at the time of application. Be sure to check with the lender to confirm if ITR is an accepted proof for your application.

Can I use my tax return for a loan?

Yes, depending on the lender, you can submit your ITR as valid income proof to avail of a personal loan.

Can personal loan tax benefits reduce my overall tax liability?

There are no particular tax benefits on personal loans. However, you can get tax exemptions on your loan’s interest if you provide proof of your loan amount usage. In such cases, it can reduce your liability. 

Can a borrower enjoy tax deductions on personal loan interest?

Yes, you can enjoy tax exemptions if you use a personal loan for buying or renovating property, for education and business expenses.