There are various deductions a taxpayer can claim from his/her total income to bring down taxable income and thereby reduce the tax outgo. If you are keen and clear about the tax saving which you can work out when you pay your loan premiums every year? You will be glad to hear that it’s over and above sec 80C.
Can the personal loan amount be taxable?
Generally, personal loans are not taxable, since the loan amount is not considered as a part of your income when you’re filing income tax returns. This means that you won’t need to pay any income tax on personal loans. However, it should be noted that the loan has to be availed from a valid source, like a bank or another financial institution, as loans from unknown sources might be considered as part of your income.
Tax benefit on Personal Loan
Indian Income Tax Act allows you numerous tax deduction and exemptions on interest expenses and principal repayment for an education loan or a home loan. However, there is no tax deduction or exemption allowed on personal loans. Deduction on the interest of the personal loan is available under certain circumstances based on the rationale for which the loan has been availed. For business purpose, the Tax treatment of interest expense is allowable as a tax-deductible expense from the profit of the borrower’s business before calculating tax. Tax liability will be reduced as per applicable marginal tax rate. For the construction of a residential property, the Tax treatment of interest expense is allowed as a deduction from Net Annual Value (Net Income) of the residential property. Tax exemption limit is Up to Rs. 5, 00, 000 according to latest revised tax examption (it’s only exemption limit).
Tax Benefit on Home Loan: Section 24, 80EE & 80C
Taking a home loan brings you closer to the prospect of having possession of your own dream property; it also comes with tax benefits that you can avail. When you take a home loan to buy real estate, keep the fact in mind that the loan is of a large amount, being aware of these tax benefits is crucial. When you use them correctly, you will be able to save a significant amount of money.
Home Loan Principal Repayment Benefit
Even as repaying the principal amount of your home loan, there is a tax deduction of up to Rs.1.5 lakh as per Section 80C of the Income Tax Act from which you can be benefitted. Availability of this benefit can only be possible after the construction of the property is complete. But if you sell the property within 5 years possession, the benefit will be reversed. The amount that you have claimed will get added back to your income in the year in which you make the sale. This section also allows you to claim the amount that you pay on stamp duty and registration as a deduction, regardless of whether you take a home loan or not.
Benefit on Home Loan Interest Payment
You can claim deductions with regards to the interest that you pay on your home loan under Section 24 of the Income Tax Act. In case your property is self-occupied, you can claim a tax rebate of up to Rs.2 lakh only if the property is completed in 5 years. If the completion of property exceeds this time limit, the rebate value drops and you can claim up to Rs.30, 000. Conversely, if you aren’t occupying the property by your own, there is no limit on how much you can claim as an exemption, apart from the status of completion.
Benefit for First-Time Homebuyers
While you can claim deductions on the principal and interest amount of your home loan under Section 80C and Section 24, you can also claim an additional tax deduction as a first-time homebuyer. Section 80 EE explains, you can claim an extra Rs.50, 000 every financial year en route for interest payments. Consider that the value of your home price should not exceed Rs.50 lakh, and the home loan value must be under Rs.35 lakh.
Benefit for Joint Owners and Co-Borrower
applying for a Joint Home Loan along with your spouse, friend or even relative is easy. You are eligible for tax benefits in such a case as long as you jointly possess the property as well. You can make each claim equal to the full amount under Section 80C and Section 24. So, if tax-saving is on the agenda, this move will help you boost your savings significantly.
Is Tax Exemption applicable on Top-up Loan?
A general home loan provides tax benefits like deduction of Rs. 1.5 lakh limit, on principal repayment as per section 80C of the Income Tax Act and up to Rs. 2 lakh in respect of interest payment in a financial year under section 24. Also, if you have taken a top-up on your home loan, you can claim tax benefit.