Availing a loan is the easiest way to fund long-term financial goals which require ample time and constant funding like the construction of a house, higher education, a marriage and so on. Certain loans not only help you achieve your financial goals, but also offer tax benefits.
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Some loans enjoy tax benefits under the Income Tax Act. Tax benefits are offered on loans in order to reduce the burden of repayment on the borrowers. Discussed below are some common loans that offer tax benefits to borrowers:
Home loans are the most efficient way to fund the purchase or the construction of a house. The gap between the income and the money required for the house is the reason prospective buyers opt for a home loan. However, home loans are huge liabilities and take a long time to be repaid. So, there are several tax benefits offered by the government on home loans.
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Home loan tax benefits are offered to the borrowers in the following ways:
Availing an education loan is the easiest way to fund higher education. With the rising cost of education, a number of students are availing education loans. The Government push on education loan means you can avail tax exemptions for the interest paid on education loans under Section 80E of the Income Tax Act.
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Under Section 80E, the borrower can avail tax deduction for education loan availed from banks and financial institutions to fund higher education. Tax deductions cannot be availed for education loan taken from friends or relatives. Unlike home loans, only the interest part of education loan qualifies for a tax deduction. There is no upper limit for the interest repayment of education loans. The tax exemptions can be availed by the borrower for a period of 8 years or the loan repayment term (whichever is earlier).
See Also: What Is My Home Loan Eligibility?
Personal loans are unsecured loans availed for various purposes. The money received from personal loans can be used for various reasons like settling medical and hospitalization bills, to fund family commitments like children’s wedding and education, meeting business capital needs, debt consolidation and home renovation among others. Personal loans are useful to bridge the gap which exists while funding personal expenditure.
What many people do not know is that personal loans offer tax benefits. Normally, the interest and the principal repayment towards a personal loan cannot be claimed as a tax deduction. However, if you have used the personal loan for home renovation or for down payment on a house, then you can avail tax benefits on personal loan. If you are using the funds for home renovation, then you can claim tax benefits up to Rs 2 Lakhs a year, for the interest paid towards personal loan.
Now you know the tax benefits of home loan, education loan and personal loan. Use this knowledge to plan your finances in a better way.
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