Get Income Tax Benefits with A Personal Loan for Employees

As an employed individual, managing your finances can be a complex and challenging task. You may find it challenging to keep up with monthly expenses and EMIs, and the added pressure of income tax obligations can make the situation even more stressful. However, did you know that taking out a personal loan can help you receive tax benefits?

Let’s examine the various tax benefits available to you as an employed individual and help you make an informed decision about whether a personal loan suits your financial situation.

Personal Loan Tax Exemption For Salaried

Since personal loans are unsecured loan products, the income tax department does not consider the income as a part of the individual’s income, making it taxable. The answer to the question, “If personal loan tax exemption for salaried employees” is available, lies in the purpose for which the borrower uses the personal loan amount.

In India, individuals who take a personal loan may be eligible for a tax rebate under Section 80C of the Income Tax Act, 1961. This section allows individuals to claim deductions for specified expenses, including the repayment of particular loans, up to a maximum limit of INR 1.5 lakhs in a financial year. This means that the amount you spend repaying your personal loan each year can be claimed as a deduction from your taxable income, reducing your overall tax liability.

Based on the purpose, the IT Act also allows exemptions under other sections. Personal loan tax exemption for salaried are available on the interest paid on the personal loan amount for the following.

• Business Purposes:

If the borrowers use the personal loan amount for business purposes, they can claim a tax deduction on the paid interest under Section 37(1) of the Income Tax Act, 1961. Furthermore, entrepreneurs can deduct the paid interest from their business profits to lower their overall tax liability. There is no prescribed maximum limit under the section for the interest amount that the borrower can claim as a tax deduction.

• Constructing or Purchasing Residential Property:

The borrowers can claim a tax deduction under Section 24(b) on the payment of personal loan interest if they use the loan amount for the construction or purchase of a residential property. The borrower can claim a maximum tax deduction of Rs 2,00,000 for self-occupied, let-out, and deemed to be let-out property.

• Improving Residential Property:

Apart from constructing or purchasing a residential property, personal loan tax exemption for salaried is valid under Section 80C if borrowers use the personal loan amount for home improvements. However, the borrower should not sell the property within five years of buying. In the case of the sale of property, the borrower is legally bound to pay the claimed exemptions within the same year. Under Section 80C, the maximum tax-exemption limit is Rs 1,50,000.

• Purchasing Assets:

Personal loan exemption in Income tax is also available if the borrower utilises the amount to buy any asset such as a vehicle, shares, jewellery, etc., the personal loan’s interest back to the asset’s acquisition cost. The addition to the acquisition cost significantly reduces the asset’s capital gains at sale time, providing a tax exemption on the sale transaction.

Avail Of An Ideal Personal Loan From IIFL Finance

IIFL Finance is India’s leading financial services company that provides comprehensive and customised personal loans to fulfil your capital requirement. The personal loan offers instant funds up to Rs 5 lakh with a quick disbursal process. You can use the personal loan amount for various purposes to avail of personal loan exemption in income tax. You can apply for the loan online or offline by visiting IIFL Finance nearest branch and verifying your KYC details.

FAQs:

Q.1: Can I get tax exemptions on IIFL Finance personal loans for salaried?
Ans: Yes, if you use the personal loan amount for the purposes mentioned above, you can claim tax deductions under the respective sections.

Q.2: What are the minimum and maximum loan tenure for IIFL Finance personal loan?
Ans: The minimum loan tenure is 03 months, and the maximum term is 42 months for IIFL Finance personal loan.