Loans: How to get maximum tax benefits in case of different loans?
Tax benefits may vary depending on the types of loans. Taxpayers can claim different deductions based on the interest and principal amounts paid towards loans.
Loans are taken from banks or Non-banking financial companies (NBFCs) with a promise of returning them within a specified period, along with the interest that is levied on the principal amount. Different kinds of loans help borrowers to meet their financial needs like buying a home, a car or starting a business. While loans can be considered a major financial burden for individuals, there are certain tax benefits attached to different kinds of loans.
Tax benefits may vary depending on the types of loans. Taxpayers can claim different deductions based on the interest and principal amounts paid towards loans.
Tax benefits under different types of loans
Home Loan: In the case of a housing loan, borrowers are eligible for tax deductions of up to Rs 2 lakh. While they can get tax benefits of up to Rs 1.5 lakh on the interest paid under Section 80EEA of Income Tax Act, 1961. Those having two self-occupied properties are also eligible for deductions of up to Rs 2 lakh under Section 24(b). If the property is rented out the entire interest on the home loan is allowed as a deduction subject to certain conditions.
Under Section 80C, a maximum of Rs 1.5 lakh can be claimed as deduction for principal payment towards the home loan.
Business Loan: Those taking business loans are eligible for tax deductions on interest paid on the principal amount. According to the Income Tax Act 1961, the funds used for business loans are not the same as the revenue or profit, and thus tax deductions are allowed. Tax benefits can be claimed for loans taken for investment in equipment and technology, as well as building materials for renovating or building a commercial property.
Educational Loan: Tax payers are also eligible for tax deductions on interest paid for education loan under Section 80E of the Income Tax Act. This benefit can be availed for a maximum of eight years. It is to be noted that the tax deduction on the interest can be claimed by the person in whose name the loan has been availed.
Car Loan: As cars usually come under the category of luxury items, no tax benefits are offered to those who avail car or auto for the purchase of their vehicle for personal use. However, in the case of self-employed individuals, vehicles that are used for commercial purposes are eligible for tax deduction under section 80C.
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