A loan from a reputable lender can provide financial solidarity and allow you to remain in a good position. Apart from bailing you out of short-term financial trouble, they can also get you great tax benefits, as long as you manage your finances well. This means while you utilize the loan to build on the purpose, you can earn monetary kickbacks in the process.
Imagine borrowing money to tide over a short-term financial crunch and enjoying tax benefits in the bargain? Yes, it’s true. There are several types of loans that not only help ease cash-flow woes during financial distress but also lower your tax liability. Read on to learn about the best loans that also offer great tax benefits.
Home Loans are one of the largest loan liabilities that a person can avail. Although the loan amount and tenure could be high, the tax benefits that a customer can fetch from a Home Loan are very attractive.
The amount you pay towards the repayment of the principal on a home loan is eligible for tax deduction under 80C of the IT Act, 1961. According to this, Rs. 1.5 lakh is the maximum amount that qualifies for a deduction. Additionally, a benefit accrues from the deduction of interest payable towards the home loan. Rs. 2 lakhs is the maximum amount that can be subject to deduction in case of a self-occupied property. The same can be claimed separately by both you and your spouse if the loan is availed jointly.
Benefits on Second-Home
In case you have bought more than one property, only one will be considered ‘self-occupied’. The others will all be deemed ‘rented out’, even if they’re not. Earlier, the whole interest payable would be eligible for deduction under Section 24B of the IT Act for properties that were adjudged ‘let out’.
You are allowed to get home loan tax benefit only if the construction has been completed and you have taken full possession of the house. However, this comes with a rider; you can also claim such deductions on the interest that you’ve paid up in five equal instalments over five years starting the date of possession.
The government has put multiple measures into practice to encourage higher education. People have become aware and are willing to venture out of the country for higher studies. However, considering the cost of education, especially professional courses such as medicine and engineering, it is challenging for many to pursue the same.
This is when education loans come handy. 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.
Section 80E of the IT Act states that only the interest payable towards the repayment of the education loan is eligible for deduction and not the principal. Tax benefits can be claimed for either a maximum of eight years or the whole tenure of the loan, whichever is less. For instance, if you can repay the entire loan within five years, the deduction will be limited to as many years.
A Personal Loan is a type of unsecured loan offered for multiple requirements. Unlike other types of loan, a Personal Loan is an open-ended loan. The borrower doesn’t have to give information on the purpose of taking the loan. Compared to other types of loans, a Personal Loan is a lot easier to obtain.
Usually, neither the principal nor the interest payable towards a personal loan is eligible for tax benefits. But only will a deduction be applicable should you utilize the loan to renovate your house or pay a lump-sum down-payment towards your home loan. Read this, for the better understanding of personal loan tax exemptions.
Since a personal loan is not considered as a part of your income, many may wonder whether you can claim a tax rebate on it. The personal loan tax benefit depends on their end-use. Tax deductions are applicable when personal loans are taken for specific purposes, like education, purchase or renovation of your house, business expansion, etc.
Life Goals: When you want financial assistance to make your life goals a reality be it a house, car or higher education.
Immediate financial requirements: You can apply for a loan when you have a financial emergency
To make financial arrangements for unforeseen expenses: If you are in an unforeseen situation where you have debts to clear such as social events, hospitalisation and so on; you can apply for a loan to make sure things go on smoothly.
Many loans come with tax benefits attached, but before applying for one, you should be aware of your financial situation, since you will have to pay back the loan amount later. With all the paperwork involved and the various eligibility criteria, you must first understand your requirement and if you think it’s an ideal way out for you, you can either go to the bank and talk to the loan manager or apply online.