3 Loans That Can Give You Great Tax Benefits

By Lehar Maan | February 2, 2018

What if we told you that you could get some great tax deals on your loans? It’s true! Read on to find out more!

3 Loans That Can Give You Great Tax Benefits

Loans can bail you out during an emergency, and if you manage your finances well, they don’t have to be a burden over a period of time. In fact, you can even get tax benefits from certain loans.

As per the Income Tax Act, 1961, certain tax benefits that have been provided to reduce the burden of tax repayment on borrowers.

Let’s look at some common loan options that offer tax benefits.

Additional Reading: Benefit From A Drop In Home Loan Interest Rates In 2017

Home Loans

A Home Loan is one of the biggest loan liabilities that a person can avail. Although the loan amount and tenure can be high, the tax benefits that a customer reaps on a Home Loans are also pretty good.

How do you benefit?

Anyone availing a Home Loan benefits in two ways. The amount paid towards the principal repayment qualifies for a tax deduction under Section 80C of the Income Tax Act. The maximum deduction available is Rs. 1.5 Lakh since Budget 2014.

Another benefit comes in the form of a deduction for the amount paid as interest on the Home Loan. The maximum amount you can claim as interest deduction from your income for a self-occupied property is Rs. 2 lakhs.

In case the loan is jointly availed between you and your spouse, the deduction of Rs. 2 lakhs can be claimed by each of you.

Additional Reading: Tax Deductions Demystified

Buying a second home?

If you buy more than one property, only one house can be counted as a self-occupied property. All other houses are deemed to be rented out (even if they are not rented out).

In case of properties that are deemed to be let out or are actually let out, the entire amount paid as interest was earlier eligible to be considered for deduction under Section 24B of the Income Tax Act. However, from April 1st, 2017, this will be limited to Rs. 2 lakhs. The rent received gets added to your income.

Additional Reading: The Pros And Cons Of Buying A Second Home

Under-construction property

It is widely known that you can start claiming tax benefits on your Home Loan only after the construction is completed and you take possession of the property.

But wait. Did you know that you can also claim tax deductions on the instalments that you paid while the property was being constructed? Well, you can. You are allowed to claim deductions on the interest paid in five equal instalments over a period of five years from the year of possession.

Note: In case you’re thinking of selling your house within five years of buying it or from the date of taking the loan, say goodbye to your tax benefits. The benefits will be reversed and you will need to pay extra tax on your annual taxable income.

Education Loans

With various measures being put into practice by the government to promote higher education, people have become aware and ready to even venture out of the country to study. However, the cost of education, especially professional courses like medicine and engineering is still quite high both in India and abroad.

This is when education loans come into play. Education Loans pave the way to your future.  But to be eligible for tax benefits on an Education Loan, the loan should be availed from a scheduled bank or a notified financial institution.

An Education Loan can also be availed for self, spouse or children. The legal guardian of any student can also avail this loan. This way, parents or spouses can also claim a deduction for payment of interest.

Additional Reading: Education Loans – Things To Think About

Section 80E of the Income Tax Act offers tax benefits to applicants availing Educational Loans for the purpose of pursuing higher education. However, just like with a Home Loan, only the interest amount paid towards the repayment of the loan is eligible for a deduction, and not the principal amount.

Also, there is no upper limit fixed for interest repayment. Tax benefits can be availed for a maximum of eight years or on the loan repayment term, whichever is applicable. For example, if the entire loan is repaid in six years, then the tax benefit is also limited to that term.

Note: Almost all education loans in India come with a moratorium period which is usually one year or six months after the student gets a job. Interest during the moratorium period gets accrued and is taken into account when the final monthly loan instalment is calculated by the lending bank.

Personal Loans

A Personal Loan is a type of unsecured loan offered for a plethora of requirements. Unlike other types of loan, a Personal Loan is an open-ended loan. It’s not important for the borrower to state the purpose of taking the loan. Compared to other types of loans, a Personal Loan is a lot easier to obtain

The most common reasons for availing a Personal Loan are:

  • Medical emergency
  • Vacation expenses
  • Home renovation/improvement
  • Higher education
  • Debt consolidation
Additional Reading: How To Avail Paperless Personal Loan

Not many know that Personal Loans come with tax advantages (depending on what you use it for) and, hence, they tend to miss out on this benefit.

Ordinarily, the principal amount and interest charges paid towards a Personal Loan cannot be deducted for tax exemptions, but you can claim deductions if you are using the Personal Loan for home renovation or to pay the down payment on a Home Loan.

Are you renovating your own house? You can claim up to Rs. 2 lakhs on interest paid on your Personal Loan.

Additional Reading: Personal Loan Handbook: All Questions Answered

If handled responsibly, loans can help you plan your finances better. We have fantastic offers just for you on both Home Loans and Personal Loans. Want to give them a shot?

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.
Category: Loans Tax benefits
Lehar Maan

About Lehar Maan

When not writing articles for the BankBazaar blog Lehar spends her time buried inside books by Dostoyevsky, Oscar Wilde and Salman Rushdie. Her life goals are to turn all long weekends into fulfilling holidays and convert her prolonged sleep hours into more productive time. She also likes all things watercolour, cupcakes and Star Wars.

19 thoughts on “3 Loans That Can Give You Great Tax Benefits

  1. Piyush Bose

    Excellent Note………………………………………………….For Service Personal as well as business man.

    Thanks for your valuable input

    Reply
    1. Team BankBazaarTeam BankBazaar

      Dear Piyush,

      Thanks for your valuable feedback. Please keep reading our blog.

      Cheers,
      Team BankBazaar

      Reply
  2. nitin walse

    Is insurance policy change if I purchase car on my firm name will u tell us difference when purchase vehicle on personal name and firm name

    Reply
  3. shreekanta

    i dint get house loan on construction of my house. then i took personnel loan to construct my house. under section 24 i will be eligible to claim deductions ????if yes apart from Provisional Interest / Principal Certificate from the bank what more documents should i keep ready to claim my interest and principle under home loan.,

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Shreekanta, While we do provide general tips and advice on personal finance, we will not be able to provide guidance on specific queries. We would love to help but due to the specific nature of your question, we suggest that you get the help of a chartered accountant to clarify this.

      Reply
  4. sujit kumar

    If a person having personal load & LIC is it help tax benefit…….

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Sujit, While an LIC policy does have tax benefits, your Personal Loan is solely dependent on these few things;
      1. If you’ve taken a Personal Loan for a home makeover or towards a Home Loan.
      2. If you can prove the expenses for the same.
      3. If renovation is the purpose, you can claim tax benefits of up to Rs. 1.5 lakh on the interest amount
      4. There is no cap on the interest amount eligible for tax benefits if you’re renovating a house given out on rent.
      Do visit our blog for more information, and also download our mobile app for latest news and updates.
      We hope we’ve answered your query.
      Cheers,
      Team BankBazaar”

      Reply
  5. Chellappa

    I have a personnel loan used for clearing my old debt. do i get tax rebate for this.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Chellapa,

      There is no rebate for a Personal Loan unless you took it to renovate your home or in the name of your business.

      Cheers
      Team BankBazaar

      Reply
  6. San

    I have taken vehicle loan , do I get tax rebate on the principal loan amount I will be paying for a particular fiscal year?

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi San,

      There are no tax benefits for vehicle loans unless you have a business and the vehicle was purchased in the name of your business.

      Cheers,
      Team BankBazaar

      Reply
  7. Srinivasan

    I am planning buy a car under car loan to add the vehicle in Zoom car/Ola for commercial business purpose.
    Will I get tax benefit for this case??? What else needs to be done to get the tax benefit.
    Please advise.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Srinivasan,

      Tax benefits for Car Loan will be available only if you register the vehicle in the name of your business. For better clarity, we suggest that you contact a chartered accountant.

      Cheers,
      Team BankBazaar

      Reply
  8. kalpesh

    i am doctor. im planning to renovate my dad home with loan of 8 lakh. i wanna know is there any loan scheme for doctors or any it benefit if i take loan for home renovation,

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Kalpesh, There are special offers available for doctors. Check your eligibility here. Cheers, Team BankBazaar

      Reply

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