People often associate loans with a financial burden. However, the truth is that retail loans are the safest and most easily accessible option when you need a large amount of money on an urgent basis. In fact, if you have a high CIBIL score and a spotless credit history, then you can even claim a low interest rate which makes repayment a lot easier and faster. In addition to that, there are all kinds of Tax Benefits to enjoy too.

Loans and Tax Benefits

Most types of personal loans, home loans, etc. offer different types of tax benefits. Below, we discuss each one of them individually:

Personal Loans

Personal loans are great for medical emergencies, weddings, startup funding, etc. In fact, in most cases, you don’t even give a detailed explanation about the purpose of the loan.

As for the tax benefits, there is no direct provision for the personal loans per se. However, if you use it for business or purchasing a home, then you can claim a tax deduction in the following ways:

• You can deduct the interest amount paid on a personal loan from your taxable income if the loan was used for buying a house. This provision is given under the Section 24(b) of the Income Tax Act.
• If a personal loan is used for a business, then you can deduct the interest amount from your gross income.
• If you used a personal loan for the renovation of your house, then you can deduct up to Rs. 2 lakh for the interest paid.

Education Loans

The central bank RBI has made education loans a part of priority sector lending for the banks. This means that there is leniency even if your CIBIL report is poor. The motive behind this is to encourage higher education and improve the employment rate.

Just like most loans, education loans offer tax benefits too. However, to qualify, you must take the loan from a scheduled bank or a financial institution that’s recognized by the government.

You can claim tax deduction under the Section 80E of the Income Tax Act when you get an education loan. However, the benefit is offered for the interest amount and not the principal amount. Also, you can claim a deduction for the interest paid for a maximum of 8 years only. That said, there is no upper limit on the interest amount, which is certainly a big advantage.

Housing or Home Loans

Home loans continue to rule the banking sector due to their huge demand and long tenures. People apply for loans to buy a new house or renovate an old one. Either way, you can enjoy tax benefits if you qualify.

The following are some of the most common tax benefits that you can claim with a home loan:

• Deduction up to Rs. 2 lakhs for the interest amount paid under Section 24(b) of the Income Tax Act. This applies when you have taken the loan for a self-occupied house. However, if you have taken the loan for a let-out house, then there is no upper limit.
• Deduction up to Rs. 1.5 lakhs for the principal amount paid under Section 80C of the Income Tax Act.
• Deduction up to Rs. 30,000 for renovations of an existing property. This provision is given under Section 24(b) of the Income Tax Act.

Additional Savings

So far, we discussed tax benefits of loan. However, did you know that you can save a lot of money by getting a lower interest rate in the first place?

The interest rate for every loan is calculated on the basis of the borrower’s CIBIL report. So, if your report shows a high score, few to no late payments, good credit variety, etc. then you can negotiate with your lender for a better interest rate.

Even if you are able to get the rate down by 0.5%, that could make a huge difference to your financial liability, especially if the tenure is extremely long (as is the case with home loans). So, be sure to check your report and increase your score as high as possible before you submit the loan application.

The post What are the Various Tax Benefits on Loans in India? appeared first on Credit Sudhaar Blog.