While buying a dream house or applying for higher studies, loan borrowing is an important procedure if you don’t have strong financial backing. Moreover, it is also said that a loan provides lots of benefit to an individual but many a times its repayment becomes an expensive task which let the borrower fell pray of a debt trap.
However, there are several loans available in the market which can provide a great relief to the borrowers along with tax exemptions too. Important among these are home loans, personal loan, education loan etc. Let’s discuss them in detail to know the tax benefits:
A home loan is an amount of money that an individual borrows from a bank at a certain rate of interest to be paid with regular EMI every month. However, the most attractive part of taking a home loan is that here both principal amount, as well as interest paid, is eligible for tax deduction. According to IT act, under section 24, while taking a home loan, a borrower can claim deductions up to Rs 2 lakh on the interest portion of the EMI paid in one year.
Tax expert says that apart from an acquired property, even an under construction property is eligible for pre-construction tax benefit. An individual can do this once the construction is completed in five equal installments, over and above the deduction you are otherwise eligible to claim from your house property income. However, the maximum eligibility remains capped is Rs 2 lakh.
On the other hand, under section 80 C, a loan borrower can also claim a deduction up to Rs 1.5 lakh on the principle which they have repaid in one year. In order to enjoy this benefit, an individual cannot sell the property for at least 5 years. Else, the deduction claimed earlier will be added back to income in the year of sale.
Apart from the above two portions, a loan borrower can also claim a deduction on stamp duty and registration charges under Section 80C within the overall limit of Rs 1.5 lakh.
To pursue higher studies, an education loan is taken. So, when a loan is taken from a registered financial institution or a recognized bank, then the borrower can avail tax benefit under Section 80E of the Income Tax Act. So, any interest paid towards the education loan is eligible for a tax deduction for a maximum of 8 years.
Personal and Car Loan
Personal and Car Loan are those where you cannot expect a tax benefit, but not everyone has the right knowledge about this. However, both these loans also offer certain tax benefits. A car loan when taken by a self-employed individual and is used for commercial purpose falls under tax deductions.
Similarly, while taking personal loans, a borrower can claim a tax deduction if it is sought for business purpose.
However, these tax rebates are only an incentive to reduce the loan burden. It’s always important that a person must select the right type of loan for any situation based on various criteria like prerequisite, repayment, and interest payable.