Personal Loan: Many individuals may have obtained a personal loan, yet they might be unaware that income tax exemptions can also apply to such loans. Are you aware that tax exemptions are available for personal loans? If not, allow us to clarify. Typically, personal loans do not qualify for tax exemptions in the same manner as other types of loans.
However, in certain specific circumstances, deductions can be claimed. For instance, if a personal loan is utilized for purchasing, constructing, or renovating a home, one can claim a deduction on the interest payments under Income Tax sections 80C, 24B, 80E, and 371. Additionally, if a personal loan is taken to cover educational expenses, tax deductions can also be claimed.
Benefit is available solely to individuals under the old tax regime
Firstly, if the loan is taken for the purpose of acquiring a house, a tax rebate will be applicable. It is important to note that this benefit is exclusively for purchasing a house and does not extend to the acquisition of land. This benefit is available solely to individuals under the old tax regime. Secondly, if a personal loan is utilized for business-related expenses, it is essential to demonstrate in your tax return that the personal loan was indeed used for such expenses. Beyond these two scenarios, no income tax rebates are available for personal loans.
Personal loan for the higher education
If you have secured a personal loan for the higher education of yourself, your spouse, or your children, you can claim a tax exemption on the interest payments under section 80C. This exemption can be claimed for a maximum of eight years or until the loan is fully repaid, and it applies only to interest payments, with no exemptions available for the principal amount. Regarding business loans, if a personal loan is used for business expenses, the interest can be reported as a business expense under section 371. If the property is rented out, the entire interest amount can be claimed for tax exemption.
To qualify for this exemption, it is crucial that the loan proceeds are actually utilized for the construction, purchase, or renovation of the property. If the loan is specifically for renovation or repair, a tax exemption on interest payments up to Rs 30,000 can be claimed under section 24B.