Loans That Can Give You Great Tax Benefits


Undoubtedly, loans and credit have become an inseparable part of our financial life. Getting a loan could save you from a financial crisis without draining your savings. Besides providing monetary aid at times of emergency, loans and credits also make a borrower eligible to avail tax benefits. Therefore, while you utilize the loan on the purpose, you can also earn monetary privileges in the process. There are certain loans that qualify for tax exemptions under the provisions of the income tax act, 1961.

So, before you apply for another credit, let’s check out the list of loans that can give you great tax benefits.

Home loan:

When it comes to buying a dream property, home loan is the only solution, especially when you don’t have enough savings for the big purchase. But, did you know that the home loan can also help you save good bucks to lower your tax liability. The Income Tax Act allows certain exemptions both on home loan interest and principal amount.

• Section 80C – Home loan borrowers can enjoy tax benefits of up to Rs.1.5 lakhs under Section 80C of the IT Act. However, the deductions are only applicable on the outstanding principal value. In case of joint home loans, both the borrowers can claim tax rebate of Rs.1.5 lakhs each.
• Section 24B – Under Section 24B, borrowers can avail tax exemption of up to Rs.2 lakh on the annual interest paid on EMIs. Joint home loan borrowers are eligible for the benefits of Rs.2 lakh each.
• Section 80EE – Home buyers have two options to avail tax rebate under Section 80EE of the income tax act. In option 1, if the home loan is below Rs.35 lakhs, while the property value is not above Rs.50 lakhs, then the borrower is entitled to avail addition tax deduction of up to Rs.50000. On the other hand, the second option states that the homebuyers can claim benefits up to Rs.1.5 lakhs under Section 80EEA. However, the homes should be sanctioned on or after April 1, 2019 and the property value should not exceed Rs.45 lakhs. Also, the borrower should not have claimed benefits under Section 80EE.
• Credit linked subsidy scheme (CLSS) – First time homebuyers are eligible to claim tax subsidy of up to Rs.2.67 lakhs under the Pradhan Mantri Awas Yojana.

Education loan:

Quality education is everyone’s right, but due to sky-rocketing fees of schools and universities, it’s seems a bit challenging to pursue your dream career. Therefore, education loan comes handy to fund the academic courses. Loan amount can be utilized for paying tuition fees, accommodation, books or study material, hostel fees, travel, or other related expenses. Besides this, borrowers can also avail tax deduction benefits under Section 80E of the Income Tax Act.

As per the provisions of Section 80E,
• Deductions can only be availed for the computed interest of the loan and not on the principal value.
• Tax benefits can be claimed only for maximum up to 8 years.v • Deductions under Section 80E are apart from the exemptions under Section 80c for the tuition fees paid.

Personal loan:

Whenever the financial crisis arrives, personal loan comes as a handy solution to overcome the situation. It is a type of unsecured loan, which can be utilized for meeting various financial requirements such as medical emergency, home renovation, pursuing higher education, managing vacation expenses, wedding expenses, and debt consolidation. Therefore, it’s a perfect option to bail out from a financial disaster.

Also, there is an additional benefit of availing a personal loan. Though the unsecured loan is not accounted as a part of income, it can get you tax benefits, subject to the loan usage.

• Borrower is eligible for tax exemptions under Section 24 (b) of the Income Tax Act if the amount of personal loan is utilized for making home loan down-payment or home renovations.
• In case, the amount is used for business purpose or purchase of an asset, the interest paid increases the overall cost of acquisition, which lowers the capital gains and reduces the tax liability.