One of the lesser known aspect is that personal loans and car loans also offer certain tax benefits
There can be many reasons to take a loan including bridging gaps in your finances or when you want to buy something quite expensive. However, you also need to keep in mind your repayment capacity. It’s often said that taking a loan is not a good idea and too much of it may get you into a debt trap. However, some loans come with tax benefits which may be handy.
Here are several loans which can provide you tax exemptions. The most important among these are education and home loans.
You can claim tax benefits for education loans under Section 80E of the Income Tax Act. Any interest paid towards the education loan is eligible for a tax deduction for a maximum of 8 years. While there is no limit on the deduction claimed, you can avail tax benefits only if you take the education loan from a financial or approved institution.
In case of home loans, both principal as well as interest paid is eligible for tax deduction. You can claim deductions of up to Rs 2 lakh on the interest portion of the EMI paid in one year under Section 24.
Adhil Shetty, CEO, Bankbazaar said that even if your property is under construction, you can claim pre-construction interest. You can do this once the construction is completed in five equal instalments, over and above the deduction you are otherwise eligible to claim from your house property income. However, the maximum eligibility remains capped at Rs 2 lakh.
“You can claim deductions up to Rs 1.5 Lakh on the principal you repay back in one year under Section 80C. However, to retain this benefit, you cannot sell your property for at least 5 years. Else, the deduction claimed earlier will be added back to your income in the year of sale. Besides claiming the deduction for principal repayment, you can also claim a deduction on stamp duty and registration charges under Section 80C but within the overall limit of Rs 1.5 lakh,” he said.
First time home buyers can claim an additional deduction of up to Rs 50000 under Section 80EE provided the amount of loan taken does not exceed Rs.35L and the value of the property does not exceed Rs 50L.
Personal Loans and Car Loan
One lesser known aspect is that personal loans and car loans also offer certain tax benefits. “Typically, cars come under the category of luxury items and as such no tax benefit is offered to customers who avail car or auto loan for the purchase of the vehicle. However, car loans availed by self-employed individuals for vehicles that are used for commercial purposes are also eligible for getting tax benefits. Similarly, personal loans are also eligible for tax exemption if the loan is sought for business purposes,” said Shetty.
Bear in mind that tax rebates are only an incentive to reduce your loan burden. Do not borrow more than you can repay. Also, select the right type of loan for any situation based on criteria like your requirement, repayment, and interest payable, and understand your options before you take a call.