Loans that provide tax benefits

May 27, 2021 Finance Talk Valli Sarvani No comments

Loans help you in time of an emergency. If you repay them properly, they will improve your credit score. Besides, some loans provide tax benefits as well.

Many of you are aware that a home loan can provide tax benefits. As it is a big amount with several years of tenure, it offers a great advantage in the perspective of tax. You can avail a tax benefit on both the principal amount and interest. An amount of ₹1.5 lakhs towards principal and ₹2 lakhs for interest can be deducted. Besides, up to ₹1.5 lakhs can be deducted towards stamp duty in the year in which the expenses are incurred. If the loan is availed jointly, then each borrower can avail a deduction of up to ₹2 lakhs on the payment of interest and ₹1.5 lakhs on principal. You can also claim deduction on the interest paid on the instalment paid for an under-construction property.

Education loan paves way for your bright future. You can opt for an education loan for yourself, your spouse or children and claim a tax deduction on the payment of interest. Remember that only the interest is eligible for a tax deduction but not the principal amount. You can avail the tax benefits for a maximum of eight years or the loan repayment term, whichever is earlier. For instance, if you repay the loan within seven years, then the tax benefits are available for seven years, but not eight years.

Personal loans are handy and rescue borrowers in times of need. These are unsecured loans. A personal loan is easy to obtain and can be used for home renovation, higher education, health emergency etc. Normally, the principal and interest paid towards a personal loan are not eligible for tax benefits. However, if you use the personal loan for home improvement or a renovation or down payment on a home loan, then you can claim up to ₹2 lakhs on the interest paid on this personal loan.

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