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Maximising Your Savings: Personal Loan Tax Benefits Explained

Personal loans are a useful instrument that can help you during times of financial duress or immediacy.  However, that’s not the only benefit that personal loans offer.

Have you ever wondered- ‘Can I avail personal loan income tax benefit in India?’ Congratulations, the answer is yes! We are here to demystify the concept of tax benefits on personal loans and explain what personal loan tax benefits are.

What are Personal Loan Tax Benefits?

The first thing to understand is that, in India, personal loans are not generally tax-deductible. However, certain exceptional circumstances are exempt to this rule. If you can prove that the personal loan was used for a tax-deductible purpose, you can claim a tax benefit on it. Let us explore these scenarios in detail.

Personal Loan for Business: If you have used your personal loan amount for business purposes, the interest paid on the loan can be claimed as a ‘business expense’. This can reduce your taxable business income and allow a personal loan tax deduction.  

Personal Loan for Buying or Building a House: If you have used your personal loan amount for purchasing, constructing, or decorating your house or property registered in your name, then you can claim a tax deduction on the interest paid under Section 24 of the Income Tax Act. However, be sure to maintain proper records and receipts to prove the usage of funds.  

Personal Loan for Investment: If the loan is used to invest in tax-saving instruments like National Savings Certificates, Public Provident Fund, or tax-saving fixed deposits, the interest paid on the loan may be claimed as a deduction.

Strategies to Maximise Your Personal Loan Tax Benefit

If you are wondering ‘how can I maximise my personal loan income tax benefit in India?’, here are a few tips and tricks to do just that:

  1. Maintain Proper Documentation: Ensure you have proper documentation to prove the usage of loan funds for a tax-deductible purpose. This could include receipts, invoices, or a detailed account ledger. Keeping a clear record of these transactions can help you claim your tax benefits without any hassle.
  1. Use the Loan for Business Expansion or Investment: If you are a business owner, using a personal loan for business expansion or investment can allow you to claim the interest paid as a business expense. This can significantly reduce your taxable income and provide substantial tax benefits.
  1. Invest in Tax-Saving Instruments: Using the loan amount to invest in tax-saving instruments can provide dual benefits. This includes insurance, Public Provident Funds (PPF), or Equity Linked Savings Schemes (ELSS). By doing this, you can not only get the necessary funds for investment but also claim a deduction on the interest paid on the loan.
  1. Consult a Tax Advisor: Tax laws can be very complex and can change from year to year. Therefore, consult a tax advisor or a Chartered Accountant to understand the latest regulations and how you can maximise your tax savings. They can provide personalised advice based on your income bracket, financial goals, and the nature of your personal loan.
  2. Co-applicant or Guarantor: If your income is not sufficient to get the desired loan amount, consider adding a co-applicant or guarantor. Their income will be considered, which can increase your loan eligibility. This strategy can also help you secure a larger loan amount, which can be used for purposes that may offer tax benefits. 

Leveraging Finnable for Your Loan Needs

Finnable, a registered NBFC with the Reserve Bank of India, is dedicated to empowering you to take charge of your finances. Here are a few benefits of Finnable personal loans:

  • Safe credit: Finnable is a trusted NBFC registered with the Reserve Bank of India. 
  • Hassle-free application: Finnable provides quick and paperless loan processes. The online process eliminates the need for a physical presence, making it convenient for borrowers across India. 
  • Attractive interest rates: We offer competitive interest rates starting at 10.5% per year, only around 1.3-2.3% every month. 
  • Large amounts: Finnable also offers substantial loans of up to ₹10 lakhs, allowing you to maximise your tax exemptions on personal loans. 

However, it’s important to note that Finnable’s services may not be available in all states, and a credit check is required as part of the loan approval process.

To summarise

While personal loans may not offer direct tax benefits, understanding the scenarios where you can claim a tax deduction can help you maximise your savings. Remember to maintain proper documentation and consult a tax advisor to understand the nuances of personal loan tax benefits. With careful planning and financial discipline, you can successfully navigate the personal loan landscape and meet your financial goals.

In conclusion, securing a personal loan can be a strategic move, provided you understand the tax implications and make the most of the benefits. Finnable, with its competitive interest rates and the quick loan process, can be a reliable partner in your financial journey. However, always remember to compare rates and terms from different lenders and make an informed decision.

Amit Arora Finnable

AMIT ARORA

I am a seasoned retail banker with over 21 years of global experience across business, risk and digital. In my last assignment as Global Head Digital Capabilities, I drove the largest change initiative in the bank to deliver the end-to-end digital program with over US$1 billion in planned investment. Prior to that, as COO for Group Retail Products & Digital, I implemented a risk management framework for retail banking across the group.
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