How To Avail Tax Benefits On A Gold Loan

Emergencies and unplanned expenses can often leave a dent in anyone’s pocket and may also force them to cut down on expenses, which are essential for the functioning of the house. In such situations, people prefer to borrow money from family and friends to tide over such emergencies. People also often take loans from banks and non-banking financial companies (NBFCs). Personal and gold loans are two of the most popular loan products offered by banks and NBFCs which people avail to meet their long as well as short-term expenses.

The advent of technology has made it easier to avail loan facilities with a few clicks. Gold loans are also suitable for those who need cash urgently. Other than emergencies, people also take gold loans for reasons such as weddings and home improvement.

In cases where expenses can be planned in advance, it is worth looking at a gold loan over personal loans or credit cards. This is because there are certain tax benefits that can be availed on gold loans. Many borrowers are not aware of this but opting for a gold loan to meet some specific expenses can help you bring down your tax liability.

Tax benefits of gold loans.

Home Improvement/Repair Work

Be it fixing a leaking tap or changing wiring in the house to accommodate a new television set, some or the other expenses keep recurring in a functional house. Thanks to inflation, even basic repair work can turn out to be expensive. And if the repair work is major such as redoing the window design or a fresh coat of paint, the expense will be much higher.

To meet the cost of such expenses while improving your house, a gold loan can be opted because it comes with tax benefits. Under Section 80C of the Income Tax Act, 1961, gold loans taken to meet the expenses towards home improvement are eligible for tax deduction. Tax benefits amounting to Rs 1.5 lakh can be availed and the deduction is applied on the principal payment.

Purchase/Construction Of Residential Property 

Taking a gold loan to buy or construct a residential property also comes with tax benefits. Under Section 24 of the Income Tax Act, gold loan borrowers can claim deduction of up to Rs 2 lakh in a year if the loan amount is used for purchase or construction of residential property. It must be noted that the deduction can be claimed only if the residential property is self-occupied and the tax benefit is applicable on the interest paid.

Even those borrowers who have a home loan may have to spend extra money to make the house suitable as per their likings. Meeting such additional expenses can be managed through gold loan because of the tax advantage. Taxation is an important element of financial planning. Saving a few bucks on taxes can be deployed as investment.

Business Expense

Those running a business are aware that a mismatch of income and expenses is common and it can be resolved through various methods. In case of higher expenses, a gold loan can be the solution. This is because taking a gold loan specifically to meet expenses related to the business also has tax benefits. The loan amount can be deductible as a business expense under the Income Tax Act. Tax benefits on gold loans can help businesses to bring down overall tax liabilities.

Asset Purchase 

Other than meeting emergency cash needs, gold loans can also be used to earn better return on jewellery rather than just keep them safe in lockers. Confused? It is possible to take a gold loan for investing in assets other than property, and such loans come with tax benefits.

For instance, if you take a gold loan to invest in the stock market because you are of the view that returns on such investment will be better, then you can opt for a gold loan. However, borrowers must note that this tax benefit is applicable in a financial year when the asset will be sold. If you took a gold loan to buy shares in 2023, and sold these shares in 2025, then tax benefits can be claimed while filing returns for assessment year 2025-26. While filing taxes, interest paid on the loan needs to be shown as the cost of acquiring the asset. This will help in lowering payment taxes on capital gains.

Conclusion

Apart from tax benefits, opting gold loans has several other advantages over unsecured debts like personal loans and credit cards. Firstly, availing a gold loan is hassle-free and quicker because of the collateral and prospective borrowers don’t have to furnish other documents such as income statements.

Unlike personal loans, where assessing the creditworthiness of the borrowers could take time, gold loans can be easily availed by those who have gold in the form of jewellery and also have KYC-compliant bank accounts. The second advantage is the lower interest rate. Gold loan interest rate starts from as low as 7.35%, whereas personal interest rate starts from upwards of 10.00% in most cases.

However, to avail the tax benefits, you should take a gold loan only from authorised lenders instead of local moneylenders or pawn shops. Taking a loan from a reputed lender such as IIFL Finance not only makes the entire process from application to approval and finally to gold loan repayment hassle-free, but also ensures that your jewellery is kept absolutely safe. IIFL Finance uses a fully digital process to sanction gold loans that quickens and simplifies the whole process. The company also takes several steps to ensure the safety of your family gold kept with them.

FAQs

Q1. TDS applicable on gold loans?

Ans. No, TDS (Tax deducted at Source) is not applicable on gold loans, because the interest that you pay on the gold loan is not considered as an income for the lending institution.

Q2. Can I save tax on a gold loan?

Ans. There is no direct tax saving on the gold loan itself. However there can be provisions of availing tax deductions depending on how you use the loan amount. For instance, if you use it for business purpose or agricultural purpose, the interest paid might be tax deductible.

Q3. Can we show gold loan in income tax?

Ans. There’s no need for you to show the gold loan in your income tax return. But in case you are claiming a deduction on the interest amount paid, then you will certainly have to provide documents needed for verification purpose.