How to Apply for Personal Loan Tax Benefits?

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The easiest loan to obtain and one that may be utilised for any purpose is the personal loan. Banks just require a very little number of facts in order to offer this sort of loan, and they do so quite easily. This loan is the most straightforward to obtain and has the fewest limitations, despite the fact that it is somewhat more expensive than other forms of loans.

When you require immediate financial assistance, a personal loan might be of great assistance. Whether you need money for a medical emergency, wedding expenditures, a dream trip, or home renovations, a personal loan can make it easier for you to fulfil all of your financial needs. There are no limitations on the final use of personal loans because they are multipurpose loans.

Are Personal Loans subject to taxes?

Keep in mind that you don’t have to pay income tax when you take out a personal loan because it isn’t regarded as a component of your income. But only if you obtain a personal loan from a reputable bank or non-banking financial institution does this apply (NBFC). Personal loans from friends, family members, or other unrecognised entities may be subject to taxation as income.

Tax Benefits for Personal Loans in India

The Indian Income Tax Act makes no mention of any specific tax deductions for personal loans, however there are tax deductions for other common loans like house loans and education loans. However, this does not imply that one cannot receive tax benefits from a personal loan. The purpose for which the personal loan was obtained will be taken into consideration in order to give tax deductions for a personal loan because there is no specific mention of tax deductions for personal loans in the Indian Income Tax Act. When taking out a personal loan, one can only benefit from tax benefits if the loan was obtained for an excuse that qualifies for an income tax deduction.

Tax advantages are not applicable to personal loans. It’s because personal loans, which are unsecured loans, are frequently thought of as supplemental costs. Contrary to house loans, student loans, and business loans, there are no specific provisions in the Income Tax Act of India that allow for tax deductions on both the principle and interest portions of personal loans.

  • Due to the fact that the money obtained through a personal loan is a loan rather than income, no tax will be assessed when it is received by the beneficiary.
  • For the purpose of claiming a deduction, adequate documentation must be provided proving that the money acquired through a personal loan was utilised for the aforementioned purpose.
  • Keep a copy of any crucial paperwork, including the loan amount, the amount plus interest that must be returned, and any other pertinent paperwork, if you want to claim income tax benefits for a personal loan.

4 Ways to avail of Tax Benefits on a Personal Loan

1. In order to grow your Business

You can apply for a personal loan and utilise the money to develop or expand your company. You can utilise the amount of your personal loan to cover all of your business-related financial needs, including buying supplies and equipment, improving your company’s infrastructure, and managing your day-to-day operations.

Additionally, doing this may enable you to earn tax advantages for your personal loan. The interest on your personal loan can be deducted from your income as a company expenditure. In this situation, there is no cap on how much you can deduct from your taxes.

2. For Acquiring or Building a Residential Property

Under Section 24 of the Income Tax Act, you may be eligible for certain tax benefits if you utilise your personal loan to buy or build a residential property. This provision permits tax deductions for any sum paid toward the interest portion of a loan used for the acquisition, reconstruction, or renovation of a residential property.

It’s crucial to remember that this personal loan tax exemption is only available if you utilise your loan for the refurbishment or construction of self-occupied residential buildings. Let’s say you’re utilising it for a rental property.

3. In order to buy Additional Assets

In addition to remodelling your house and growing your business with a personal loan, you may also utilise it to get tax advantages by buying assets like gold, jewellery, cars, two-wheelers, etc. You can deduct these charges from your taxes when you sell your assets since they are regarded as asset acquisition costs.

In this instance, the acquisition expenses lower your capital gains and, as a result, your overall income tax obligation. The only year you may deduct interest paid on personal loans used to buy assets is the year you sell those assets.

4. Paying for your Higher Education

Under section 80E of the Income Tax Act, taking out a personal loan to pay for your further education might give you tax advantages. This clause permits tax deductions for any amount paid toward the interest portion of a loan taken out to pay for your own, your spouse’s, or your kids’ higher education.

The most that may be deducted under this clause in a particular fiscal year is Rs. 1.5 lakhs. This advantage is in addition to the deductions you may make if you are a student’s legal guardian and have taken out a loan to pay for his or her education. As you can see, personal loan tax exemptions only apply to the repayment of the interest component, not the principle component. You won’t be able to take advantage of any tax advantages on your personal loan if you utilise it for anything else the aforementioned purposes.


A personal loan can be a great option to handle an urgent financial requirement or plan an event. You can also get personal loan tax exemptions wisely by using your loan amount.