Everyone cannot afford everything at that very moment or instant. Sometimes, one lacks the financial strength to accommodate certain necessities in life. In such cases, a personal loan comes to their aid. A personal loan is an amount that one takes from the bank for personal reasons such as to make a home, get an education, etc. Considering the significance of such loans, specific provisions exist that allow individuals to get tax benefits. Therefore, this article enlists a few such details that will help you next time you apply for a loan.
Do you Have To Pay Taxes on Personal Loans?
When you take an amount from a certain bank that is recognized by the concerned authorities, you are not liable to pay any taxes. This is because the amount you take will not be counted as a part of your salary. Therefore, no tax shall be levied on it. However, this aspect is true for loans that are taken from established entities.
It is important to remember that those who avail loans from their near and dear ones in times of need may not be able to avail such benefits. However, most people are unaware of the specific criteria or circumstances under which one can get some relief from taxation. Therefore, in the section, a few such instances have been enumerated in which one can have some tax benefits from personal loans.
When Can One Get Tax Benefits?
As stated above, some exclusive instances make it possible for the borrower to escape the burden of taxes. For this purpose, they have to produce proof that the money they borrowed has been used for the specified cause. These causes include:
- If the borrower takes money from a bank to repair or renovate his house, he will not be asked to pay any taxes. This is the provision made under the Income Tax Act.
- Similarly, if the money borrowed is being utilized to either purchase a home or rent it out, then there are certain tax deduction, which varies in each case. For example, if you purchase a home for personal use, a specific amount of your tax will be reduced. At the same time, if you decide to rent it out, the tax will be almost deducted.
- Those who are considering opting for an education loan but are afraid of taxes can easily opt for it. This is because loans taken for educational purposes are also free from taxes. However, this is true for either eight years of the loan or till the actual debt amount is cleared.
- Entrepreneurs can also benefit from tax benefits if they want to start a business. It is also possible for those who are investing in a company or any such venture. Such benefits also allow entrepreneurial activities to flourish within a specific region.
Considering all such aspects and having sound knowledge of them is necessary while taking a personal loan. Getting a loan has now become quite easy with the emergence of various facilities, such as websites, instant cash loan app, and more. However, thorough research is essential before opting for any such loans.