Can you get tax exemptions on Personal loans?
Personal loans are those loans that you can seek to fulfil your needs. These needs could be buying a house or a car, planning a wedding or vacation, investing in a business and several others. One can obtain a personal loan by reaching out to a nearby bank. But before you proceed with a personal loan, you must learn about every possible personal loan tax benefit available.
First, the lender will check the eligibility criteria such as nationality, age, salary, job sector, and job status. Then the lender will proceed to refer the papers like employee ID card, Aadhar or PAN card, salary statement for the past 3 months and bank statement for the past 3 months. The loan amount may vary based on the city in which one resides and the monthly salary.
The loan offered by each bank may also differ. These personal loans will tend to have a high-interest rate since they are unsecured. The ease with which you can acquire a personal loan may raise the question of taxation. Since it is not a part of your income, it is exempt from tax filing. There is no defined personal loan tax benefit, but taxes are exempt in most cases.
What are personal loans?
Personal loans are loans taken to meet a person’s necessities or interests. There is no narrow spectrum only when a person is eligible for personal loans. It could be for investing in a business, stocks and shares, meeting marriage expenses, debt consolidation and several other needs. A personal loan is different from credit cards in that a lump sum of money is offered at once.
How to get personal loans?
Many lenders now offer personal loans online. Here are some of the steps that you can follow to get a personal loan:
- Initially, check for the eligibility criteria.
- Determine the monthly instalments
- Gather the essential documents as demanded by the bank
- Approach either the bank in person or via online mode.
- Consult the site or manager for anything one should be aware of before applying for a loan, like the interest rate or if the loan is taxable.
- Personal loans are not taxable, so keep an eye out for the tax implications.
- Apply for the loan.
Why are personal loans called unsecured loans?
They are called unsecured loans. Generally, a loan requires pledging collateral to secure the loan amount. This is not applicable when you seek a personal loan. There is no need for collateral to safeguard a lender if the borrower fails to repay the loan. Hence personal loans are considered unsecured loans.
Is a joint personal loan a possibility?
Yes. One can apply for a joint personal loan with a partner. This partner holds an equal responsibility to repay the loan as the borrower. Joint individual loan sanctions involve screening the documents of both parties and not just the original borrower. It is important to note that the co-applicant credit score and other features can affect the loan amount available.
Are personal loans tax-free?
Personal loans are generally tax-free as they are not your income but an obligation. As they will not be added to your income, there is no need to pay any taxes on the same.
What are all the features of a personal loan?
Here are some of the key aspects of a personal loan that you must be aware of:
- Comparatively fewer papers are needed to handle the application process.
- Collaterals are not needed to qualify for a personal loan.
- Personal loan tax benefits can be availed.
- There are fewer limits on how the money should be used, making it a flexible loan for the needy.
- Money can be repaid in any possible manner owing to your needs.
- You can easily qualify for this loan and it won’t be a time-consuming process.
- By repaying personal loans on time, you can increase your credit score.
Ways to save tax for a personal loan.
Personal loans are not related to your income. So they are not taxable as long as the loan is acquired from a credible bank. If not, it should be a part of your tax filing. However, based on how the money is used, the interest paid will be deducted. Personal loans used for the right reasons will be exempted from tax.
- Medical expenses: A sudden medical emergency is a valid reason to seek a medical loan.
- Buying or building a home: This is a very common reason for personal loan applications. People trying to build, buy or renovate their homes can apply for personal loans to support their monetary needs. This is a common personal loan tax benefit. Note that the loan money should not be used in real estate or renting a house.
- Business growth: Money can be borrowed from the bank to initiate a business or to develop an ongoing business. This is another classic scenario of applying for personal loans. Investing in a business increases the liability, thus reducing the overall tax payable for the business.
- To buy assets: Assets like jewellery, non-residential building property, shares, stocks, and cars are considered a valuable use of money obtained via personal loans. These assets tend to increase in value over time. Thus, one can avail of tax benefits though there are no tax benefits posed for personal loans.
Conclusion
Personal loans are one of the popular loans that are meant for the benefit of persons who are in urgent need of money. So, people should make better use of it to support their needs during urgent times. However, it is to be stressed again that personal loans are non-taxable in general. If you want the best personal loan deals and offers, visit Piramal Finance. They also have many articles and blogs to help with your finance skills.