Personal loan is an unsecured loan, the Income Tax Department does not give any on it, but we are going to tell you that if you have taken a personal loan for someone, then you can claim tax exemption on it.
Most of us know that Income Tax Deduction is not available on personal loan. The way income tax exemption is available on home loan and education loan, it is not available on personal loan. We are going to tell you that if you have taken a personal loan then you can get tax exemption. It depends on what you did with the personal loan money and where you spent it.
Three ways to get tax exemption on personal loan
Nothing has been said in the Income Tax Act regarding personal loan deduction. But this does not mean that you cannot take a discount on a personal loan. If you have taken personal and used it for business, construction or purchase of residential property or have purchased certain properties which come under tax exemption, then you also get tax exemption on personal loan.
Personal loan money invested in business
If the personal loan money is invested in the business. Then you can show the interest as an expense and claim it. This will reduce your tax liability as well as increase the profit of the business. The best part is that there is no cap on this, that is, you can claim any interest by showing it as an expense.
Personal loan money spent at home
There are two types of tax benefits available on home loan, one on interest and the other on principal. If you have taken a personal loan to get your home repaired or have bought a residential property, you can avail tax benefits. You can avail tax benefit on interest under section 24 of Income Tax. If you live in that house then you can get tax exemption up to Rs 2 lakh. There is no limit on how much tax exemption you can claim if the house is let out.
Buy Assets With Personal Loan
If you have bought jewelry, non-residential property or invested in stocks with the personal loan money, then you can get tax exemption on this too. Although this exemption cannot be taken in the year in which the interest is paid. The tax benefit will be available in the year when the asset is sold.
One thing to note here is that tax exemption will be available only on the interest and not on the principal amount. Secondly, if the personal loan money is invested anywhere other than the three assets mentioned above. Then the benefit of tax will not be available in it.
