3 Ways to Avail Tax Benefits on a Private Finance Loan

1. 3 Ways to Avail Tax Benefits on a Private Finance Loan

2. When it comes to meeting unexpected financial emergencies, a personal loan is your best bet. There are many personal loan lenders such as banks, NBFCs, and other platforms like FinTech companies that can provide you with emergency funds almost instantly. You can use the funds to fulfill your requirement and repay the loan in easy EMIs. So, you enjoy the dual factors of convenience as well as flexibility, since the loan tenure is set based on your repayment capacity. If you’re unable to get a personal loan (for whatever reason), you can also apply for a private loan using a private loan app. But do these private finance loans come with tax deductions?

3. Unlike education loans or home loans, there are no special deductions for private loans under the Income Tax Act. However, this doesn’t mean that one cannot avail of tax benefits on such a loan. Based on the purpose for which the personal finance loan was used, you can avail deductions on the loan. There are certain reasons/uses for which a tax deduction is granted. Here are 3 ways to avail tax benefits on a private finance loan:

4. Business Investment If you apply for a private finance loan using a private loan app and invest the funds in your business, then you can avail tax benefits in this scenario. The interest amount that you pay on the loan can be claimed as an expense and will be deducted. So, whether you own a food truck or have your own photography business, you can still avail of this tax benefit. When you do so, your tax liability will decrease. And so will your net taxable profits. Your overall tax burden will reduce as a result, and there is no maximum limit to the amount you can claim in this case.

5. Purchase / Construction of Residential Property and use the private finance loan funds towards this purpose, you can avail of taxbenefits from this loan. Under Section 24 of the Income Tax Act, 1961 you can avail tax benefits for the repayment of interest on your personal finance loan. However, you have to remember that there’s a cap on the tax deduction amount if you are occupying the residential property. ₹2,00,000 is the maximum amount that can be deducted in such a scenario. If you have rented out the house to someone else, there is no such cap on the amount that can be claimed. All that matters is that you need to be the owner of the house. Let’s say you want to construct a house or purchase one. If you avail of a

6. Investment in Assets This is the final scenario wherein you can avail of tax benefits using your private finance loan funds. You can do so when you have invested the money in the purchase of assets. Examples of such assets include company shares, non-residential property, and jewellery among others. Now, it is important to remember that you cannot claim tax benefits in the same year you pay interest. You can do so only when you sell the assets. Like the previous two scenarios, you can only claim tax deductions on the interest amount of your private finance loan and not the principal amount.

7. Wrap Up The above three points illustrate the scenarios where you can claim tax benefits under a private finance loan. However, please remember that if you apply for a private loan and use the funds for any other purpose than those listed here, no tax benefit will be granted towards your loan.

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