Personal loans are among the most accessible ways to raise finance for various purposes. For example, a personal loan can be a great help when you need to fund higher education, tackle a medical emergency or plan a large expense like a dream wedding. You can also claim personal loan interest deduction based on the purpose of the loan.
Personal loans are unsecured, and therefore lenders consider them riskier than secured loans. This means personal loans attract a higher interest rate. That said, the ease with which these loans can be availed and the freedom to use the amount for any purpose you like makes them ideal in many situations.
Remember that the personal loan amount that you raise is not a part of your income. This means you would not pay any income tax on the loan amount. That said, remember that this applies only when you take a loan from a bank or recognised NBFCs. If you take a loan from other sources like a family member – it may be considered a part of your income and can be taxed as such.
There are no tax benefits you can get on a personal loans. This is mostly due to the fact that personal loans are unsecured against any assets, and is an optional expenditure. The Income Tax Act offers tax deductions for loans which cater to specific purposes. The following are a few examples
Personal loan tax exemption for salaried is not available even if you use the funds towards purchasing a new home or renovating your existing home. However, the home loan you may have taken to purchase a home is certainly exempted from taxes. If it is a house that you own and live in, you are eligible for deductions up to ₹2 lakh. If it is a rented house, the total interest paid on the loan can be deducted from your taxable income. Make sure that you keep all the relevant documents that prove how the loan amount was used before claiming the tax benefit.
Term loans for business which are secured against assets such as land, securities or other property is exempted from taxes up to an extent. However, personal loans for business or unsecured business loans don’t carry any tax benefits.
Besides residential property, there are various income-producing or investing assets like shares, gold, jewellery, cars, two-wheelers, or non-residential house property. If you need funds for any of these purchases, you can apply for the appropriate product to avail the tax benefits against the same. However, personal loans taken even for these purposes are not eligible for tax benefits.
Let us look at how to calculate the loan amount you are eligible for. The easiest way to do this is through our personal loan eligibility calculator. The loan amount that you can get depends upon your income, credit history, employment history, and repayment capacity. Our personal loan eligibility calculator would provide you with an instant estimate on the personal loan amount available based on:
Remember that this is just an indicative figure, and the actual amount that you are eligible for will be determined after a thorough check by the lender.