A loan is probably the last resort that many people consider when in need of funds due to the high interest rates attached. If you also stay away from loans for the same reason, you might want to reconsider your decision. Different types of banks available in India, and not every financial institution levies the same interest rate on loans. You can look for a bank whose interest rates are comparatively lower. Besides a lower interest rate, you can also claim deductions on your taken loan amount in the manner prescribed by the government for maximum benefits.
To strengthen the lending sector, the government of India provides many benefits through deductions in IT returns. If you have taken a loan, you can consult with your tax planner about the possible deduction under section 80 C, 80 E, and others. To help people make the most from their borrowings, we have listed the three loans that offer significant tax benefits in India. Take a look at each, and plan your financials accordingly.
1. Personal Loans
As FinTech startups are revolutionizing the personal loan industry, getting a personal loan is becoming a lot easier. An unsecured and open-ended loans, personal loans are taken for a variety of personal reasons. Whether you want urgent funds for your children’s wedding, home renovation, or any other purpose/event that cannot be delayed, personal loans are the best. Just like you calculate home loan EMI using online calculators, you can do the same for personal loans to get a rough idea of the EMI you’ll be required to pay every month.
Not many people know that a certain amount can be claimed for deduction if you use the borrowed money towards home renovation or paying the down payment on a home loan. You cannot claim deduction towards the payment of principal and interest amount, but you can claim the amount used on a home renovation or down payment under section 24(B) up to a limit of Rs.2 lakhs. Ever since the new tax rate cuts were announced, this information can help people with personal loans get some tax relief.
2. Home Loans
The rising property prices have made many people shift towards home loans as the only way of buying their dream home at the earliest. Though the home loan amount paired with the interest amount can be massive for any citizen to pay, the longer loan payment tenure can make it a little easy and manageable. But that’s not it! If you’re a taxpayer, you can claim the amount paid towards the interest on principal repayment as a deduction while filing your IT returns.
Whether you take the home loan from a nationalized bank or the you can claim a deduction under section 80(C) for up to Rs. 2 lakh towards interest payment of the home loan for a self-occupied property. If you along with your spouse jointly own the purchased property, the deduction limit will be Rs.2 lakh for each, making it a total of Rs.4 lakh.
The deduction limit for principal amount repayment is Rs.1.5 lakh. But if you sell the house within five years of the purchase date, the government will reverse all the tax benefits, and you will be liable to pay the reversed tax amount in the next financial year. So taking home on loan, don’t just calculate home loan EMI, but also keep the above-discussed essential points in mind.
3. Education Loans
Most students aspiring for higher education end up taking loans to fund their education. If you’re planning to take an education loan for your spouse, children, or self, you can get relief in the form of tax benefits. You can claim a deduction for the interest paid towards the education loan throughout the loan repayment term or a maximum of eight-years. But to claim the tax deduction applicable under section 80(E), make sure to take the education loan from a notified financial institution.
Now that you’re aware of the tax benefits, you can discuss the possible deductions with your tax planner. If you already have a loan from Bank of Baroda, Vijaya Bank, or Dena bank, don’t forget to check if their merger has influenced your loan terms in any way.
One more thing to mention here – the amount exemption posssible and the income tax seciton under which the benefit is provided.
