Income Tax deduction on personal loan - Know the provisions here

Income tax: Salaried employees invest in many policies to avail of the tax benefit. But are you aware of the fact that one can also avail of tax benefits on personal loans? Well, there are no tax benefits on the repayment of a personal loan. However, interest paid on a personal loan can be claimed.

If you are using the amount of personal loan for the purchase, construction or repairs or renovation of a house or property, you can claim the interest under section 24(b) within prescribed limits, provided you are able to conclusively prove that the personal loan was in fact used for the stated purpose.  

The one thing to note is that the tax deduction will be applicable only on the interest amount and not the principal loan amount. If the personal loan has been applied for any reason other than the above-mentioned reasons, no tax benefits will be granted on the personal loan.

Invest in Business

If the personal loan amount has been invested in the business, the interest paid can be claimed as an expense. There is no cap on the amount that can be claimed in this case.

Invest on the purchase or construction of a residential property
 

You can also avail of a personal loan if you have used the personal loan money for the purchase or construction of a residential property. One can avail of tax benefits from a personal loan if they have used the personal loan money for the purchase or construction of a residential property. The maximum amount that can be deducted as tax deductions, in this case, is Rs 2,00,000 for a house occupied by the borrower.

The borrower can avail of tax benefits for repayment of interest for the same under Section 24 of the Income Tax Act, 1961. There is no cap on the maximum amount that can be claimed if the house has been rented out to someone else.

Investment in assets

You can avail of tax deductions under the personal loan in cases where the loan amount has been invested for the purchase of assets such as jewellery, non-residential property, shares, certain stocks and more.

The borrower can claim the tax benefit in the year in which they sell the asset.