How Can You Save Your Tax with The Help of a Personal Loan?

A personal loan is a financial product that can be used for multiple purposes, but most often, personal loans are used to meet short-term financial needs. Personal loans are unsecured loans with a rapid process choice. This means you may get this loan rapidly without putting up any assets. These factors make personal loans perfect for getting cash. Moreover, personal loans are tax-free. 

Not only would a personal loan save you money, but you can also employ it to make extra funds if you so pick. There are several Tax-Saver Bonds offered. So, you may invest your loan sum in such Bonds to earn money while saving taxes. It’s a win-win scene for you since you’ll be able to save and gain at the same moment. If used wisely, personal loans may be a great tax-saving tool.

What Kinds of Loans Are Taxable?

In India, most loans from banks and other formal lenders are tax-exempt. Most of you mistakenly believe that tax breaks are solely offered for home loans, but this is not the case. You may claim income tax refunds on school loans, vehicle loans, and personal loans, in addition to a house loan, based on how the cash is used. Varied forms of loans have different tax benefits based on the Income Tax Act of 1961.

Ways to Save Tax With Personal Loans

Personal loans are not taxed since they are not deemed as income. It is vital to know that lending from friends or family is better than lending from a reputed bank. 

You may be liable for rewards if you employ your personal loan for the below purposes:

• To repair or renovate your house
• To expand your business
• Other assets investment
• To buy or build residential property

Let’s look at how you may profit from every one of the examples above.

• Repair or Renovation of a Home

If you utilise a personal loan to remodel or repair your house, you may deduct up to Rs. 30,000 of the interest paid from your total taxable income. For the bank to provide an interest certificate, you must offer the relevant receipts and documents.

Taking a personal debt to make a down payment on residential land provides tax as perks per Section 24 (b) of the Income Tax Act. If the home is under work, it must be ready to live within three years of the loan’s sanction, and deductions may only be claimed after the project is completed. You may also earn rebates for house repairs, fixes, or construction that are paid using a personal loan. 

The highest taxable interest is Rs. 1.5 lakhs if you live in the home for which you’re claiming deductions. If you rent the residence, there is no limit on the sum of interest you may deduct.

• Business Expansion

If you utilised the loan to expand your firm, you might claim a tax deduction for the interest costs on the loan. Yet, the money must have been utilised to increase the firm’s income. You must present the relevant paperwork as evidence of use.

• Other Asset Investment

When investing in other assets such as non-residential real estate, gold, cars, stocks, and so on, the interest paid just on a personal loan may be added to the price of the asset purchase. This will help you when calculating capital gains at sale time.

• Funds Spent on Buying or Building Residential Assets

If you used a personal loan to buy a property or build your own home, you may deduct the interest payment and get tax advantages. Section 24(b) of the Income Tax Act allows you to claim a deduction of up to Rs. 2 lakh just on interest repayment on residential or empty assets. You must own land to take advantage of the tax advantages of personal loans. If the home is leased, the whole interest charged on the loan may be deducted from your taxable gain.

How You Can Get a Personal Loan

Now that you have grasped how to utilise your credit to get tax advantages, let’s discuss how to apply for a personal loan.

• Step 1 – The first thing you must do is choose a bank. You must check many elements when picking a lender, like personal loan rates, debt size, eligibility, and payback factors.
• Step 2 – Once you’ve decided on a lender, go to their website to ask for a personal loan online. You may also do this by using your phone to download a personal loan app.
• Step 3 – Enter the sum of your personal loan as well as the length of time you wish to borrow. Pick a proper repayment period so that you can settle your loan instalments.
• Step 4 – The bank will confirm your information and deposit the loan funds into your bank account. You may apply for a personal loan to satisfy your unique financial needs.

Required Papers for a Personal Loan

• If you are a salaried professional or work for yourself, you must show proof of your official address. This can be a lease deed, a bill related to your telephone, or a certificate for a store or business.
• Additionally, you must present your Income Tax Returns that date back to the last two years.
• For those who get a salary, submission of a salary slip along with Form 16 is mandated.
• A passport-sized photo.

Conclusion

While you can reduce the rate you pay on your loan in some instances, you should still try to pay as little interest as possible in the first case. Looking around for a loan and boosting your credit before applying will help you locate and qualify for the best deals. 

Tax planning is an ongoing effort that is a vital part of handling your budget. Many of you have explored using your tax return to pay off debt. Yet, a more stable source of finances, like a personal loan, may be a better option. If you want to learn more about personal loans, visit Piramal Finance and explore their products and services.