Personal loan

Interest on a personal loan can be deducted from income tax in certain cases. Details here

How can I benefit from tax advantages for a personal loan taken out? Can I claim any compensation for repayment of the personal loan?

Answer: No tax benefits are available for the repayment of a personal loan. However, interest paid on a personal loan can be claimed as a deduction depending on the end use of the borrowed amount. So, in the event that the personal loan amount was used for the purchase, construction or renovation of repairs to your property, you can claim the interest under section 24 (b) within the prescribed limits, provided you can conclusively prove that the personal loan was in fact used for the stated purpose. The total interest on all monies borrowed for the above purposes can be claimed up to two lakhs per annum if the ownership of the house is self-occupied. In the event that the personal loan has been used for rented property, the full interest paid may be claimed against the taxable rental income subject to a restriction of compensation for losses in respect of the ownership of the house, for all assets taken together, on other income. during the year being limited to two lakhs. Any remaining unabsorbed loss beyond two lakhs can be carried forward to be deducted from the income from the ownership of the house over the next eight years.

If you carry on a business or profession and the money borrowed on a personal loan was used for your business or profession, you can claim the interest paid on that personal loan as a business expense under the section 37(1). The same can be claimed even if you have taken out a personal loan for the purpose of buying a fixed asset like a vehicle etc. Please note that no tax benefits are available for interest paid on a personal loan used for personal purposes such as marriage, vacation, etc.

Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on Twitter

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