Are Personal Loans Taxable in India?

1
Are Personal Loans Taxable in India?
2

• Kavya decided to go for the house renovation
  due to upcoming Diwali occasion. She applied for
  the personal loan and got it in no time. She was
  happy that her family was now able to manage the
  financial expenses that are going to occur due to
  renovation. Apart, when she came to know that
  there is some tax benefits associated with the
  personal loan and she took a huge breath of
  relief!!!
• Personal loansare the best instruments to
  meet your financial requirements or to overcome
  the financial crunch. These are the unsecured
  loans and they are the ideal instruments when you
  dont have security or property to pledge for
  loan amount. Usually, most of the times, personal
  loans are not taxable. You can even claim the
  income tax benefits over personal loans, if you
  have used the loan amount to construct,
  reconstruct, repair or acquire a property.
• The interest charged for the personal loans
  can be higher being an unsecured loan. It is easy
  for the salaried people to apply and avail the
  benefits of the personal loan. The self-employed,
  entrepreneurs or business-men can provide the
  income proof with respect to their business in
  order to avail the loan.

3

• Loans are not being considered as the part
  of your income, thus the personal loan will not
  be considered as taxable when you file the income
  tax returns. Hence, this simply means that you
  will not have to pay any kind of tax on the
  personal loans. But, at the same time, it is
  essential that the personal loan should be from
  the reliable sources such as Banks, Non-Banking
  Financial Companies or financial institutions or
  financial lenders etc. The loan availed from the
  unknown sources will fall under the category of
  income and that will be taxable.  
• You can claim the tax benefits on the
  personal loan in certain cases. If you can prove
  that the loan amount has been used for the valid
  expense (Regardless of the source of loan), then
  you can use such personal loans for the purpose
  of tax savings. You can even claim the tax
  deduction on the paid interest of the loan. There
  are many lenders available in the market, that
  are authentic and they provide easy process to
  follow for the personal loan along with instant
  approval features.

4

• If you have availed the personal loan for
  your house, then the proper arrangement for the
  same can create the wonders in terms of tax
  deductions. According to Income tax act, section
  24(b), the same provides the great relief to the
  house buyers and provide them tax deductions on
  the loans, if they have taken a loan to buy a
  residential property or for the renovation of
  such properties. If you have used personal loan
  amount for the down payment to buy a house, then
  you can opt for tax exemption. At the same time,
  if the amount is used for renovation, home
  repairs or reconstruction, then all these
  expenses will fall under valid expenses for the
  tax deduction purpose

5

• If you have availed the personal loan for
  the education purpose, it also can be helpful
  while calculating the income tax. You can avail
  the tax deduction on the interest paid by you.
   Here, the important thing is that this benefit
  can be availed by you if you have opted the
  personal loan for your education purpose. If the
  same has been availed for your child or partners
  education, then you will not be able to take the
  advantages for the same. Now a day, people chose
  to avail the personal loans for the business
  purpose as well because the same is easily
  available. One can get a quick disbursal of the
  loan amount once the steps to avail the loans are
  properly taken. But, one should not forget that,
  here the interest that will be paid, will be
  considered as a business expense. Hence, the same
  shall result in the lower taxable income.

6

• In order to claim the tax deduction, you
  will need all the documents as a proof that the
  loan amount has been used for the house. You need
  to preserve all the bills related to repairs,
  reconstructions, repairs, labours etc. to claim
  the tax deductions.  If personal loans are used
  in the appropriate manner, it can become your tax
  saving tools just like it is the tool to meet
  your urgent, unexpected financial needs. However,
  one needs to know how to use the same properly.
•