Personal loans are the best way to address your financial needs. Right from meeting your son’s educational needs or planning your dream wedding, a personal loan can be your best aid. As personal loans are unsecured loans, you don’t need to pledge any assets as collateral to avail the funding. The personal loan rates are often higher than the secured loans. Personal loans are also a more accessible source of funds to salaried and self-employed professionals.
Is The Personal Loan Amount Taxable?
Usually, personal loans are not taxable since the loan amount is not considered as a part of your income during filing of income tax returns. It means that you will not need to pay any income tax on personal loans. But it should be noted that the loan from unknown sources might be considered as part of your income.
- Cancellation of debt: when the moneylender decides to waive off your debt, then the situation might turn against you. If the lender cancels the debt, then the loan amount you have borrowed will be considered as your income.
- Borrowed from Unknown sources: borrowing money from authorized lenders is the only safe way to get tax benefits. If the source you have acquired loan is unknown and not recognized under the Credit Information Bureau India Limited, then your loan will be treated as your income.
Tax benefits with personal loans
Personal loans come with taxi benefits based on the end-use of the loan amount. The Indian Income Tax Act enables tax deductions on loans for specific purposes including the purchase or renovation of your home, education and business expansion.
- Tax benefits for purchasing home
According to section 24 of the Indian Income Tax Act, if the loan is used for the purchase or renovation of a property, then the interest paid on loan can be claimed as the exemption from your taxable income. Thus, if you availed the personal loan to purchase your dream home, you would be eligible for tax deductions under section 24 (B).
- Tax benefits for home renovation
If the loan amount is used to renovate your self-owned house, the interests up to ₹ 200,000 can be exempted as per the Income Tax Act. And for the rented house, the entire interest paid on the personal loan would be eligible for tax benefits. All you need is to save all your tax and home renovation related documents as proof that you have utilized the amount for your home renovation.
- Tax benefits for purchasing assets
If the loan amount is used for buying any asset, then the interest paid will be added to the cost of acquisition. It will decrease the capital gain and also reduce the tax liability for your business.
- Tax benefits for business
If the loan amount is used for a business purpose, you can expect some form of tax benefits from your loan. You can claim the interest paid on the personal loan as the expense, which reduces your net profit.
Tips to acquire personal loan at the best rates
Obtaining a personal loan online is very easy. All you need is to have a good CIBIL score and necessary documents required for the personal loan. A personal loan is an unsecured loan, and so the rate of interest is higher compared to the secured loan. Nevertheless, there are certain factors you should bear in mind for acquiring a personal loan at the best rate of interest.
- Maintain a good credit report which is an essential part of becoming eligible for the personal loan. If your credit history is right and you have a CIBIL score of more than 750, you will be eligible to get a personal loan at a lower rate of interest. The moneylender will also provide you with other benefits like reward facilities or gifts due to excellent credit score.
- Manage just one credit card, which increases your creditworthiness. Owning multiple credit cards reflects a poor credit history. Also, try to make regular payments for your credit card.
- Clear all your previous dues before applying for a personal loan. Having cleared dues can affect your chances of getting personal loans.
- Find out the best money lender in your area that offer a uniform rate of interest for every borrower.
Personal loans are an excellent way to manage your finances when there are any sudden requirements of a fund or any event. They can be used as an efficient tax-saving option if invested smartly. Reputed money lenders can help you to avail personal loans online in just a few clicks.