A personal loan is an unsecured credit product offered to salaried, non-salaried, and self-employed individuals by banks and lenders.
Your personal loan can be high as Rs 30,00,000. Typically, constraints are taken while personal loan application includes: borrower documents, credit score, employment stability, income, repayment history, outstanding debt. However, the loan amount is decided by the borrower, how much he/she can pay monthly as EMI, their financial plan, so don’t get trapped by lenders scheme. Analyze your monthly expenses and how much you can afford to pay as an interest.
Question is whether or not personal loans are tax saving credit? As such, there is no specific mention in the Indian income tax act about personal loans helping individuals to save tax.
We are aware of that home loan is tax-saving instruments owning too large ticket sizes, and a major part of income goes into paying interest of the home loan.
But do personal loan helps you to save tax, that depends on how you use the loan amount.
For Constructing A Residential Property:
If you are going to use the loan amount to construct a residential property, then you are eligible for the tax deduction on interest component.You can claim for benefit of Rs 200,000 if you decide to live in a house which you constructed.
For home renovation:
If you are using your loan amount for renovating your house, you can claim for the tax relaxation by showing the proof that the amount is specifically used for renovation. You can get a maximum of Rs 30,000 tax deduction on a personal loan used for home renovation.
For a Business Purpose:
If you invest your personal loan amount in business, the interest paid towards the loan counted as expenses, then you are eligible for the tax deduction which will be adjusted in your business profit and gross revenue. Your taxable profit reduces and lowering your total tax liabilities. In this, there is no maximum amount you can save.
To purchase an asset:
In this, type of asset purchase consider while tax deduction on a personal loan used for the purchase of the asset. You are not directly eligible for tax deduction. Under this provision, there is no limit on the amount you can save on tax.