Whenever there is a financial hardship, loans are the ideal option to raise funds to meet your requirements. You can avail of either secured or unsecured loans to meet various purposes including medical costs, home renovation, business, dream vacation, higher education, so on. Moreover, you can get tax benefits from certain types of loans as per the Income Tax Act 1961.
In this article, let us look at the three types of loans that offer you tax benefits.
Three Types of Loans that will help you get Tax Benefits
Under Section 80C of the Income Tax Act, you can claim upto INR 1.5 lakhs per financial year to repay the principal amount when you take a home loan. To be eligible for this tax benefit, you must have owned the property for five years.
When you buy a second home, you can claim a deduction up to INR 5 lakh per financial year only when you have owned the house for at least five years from the date of possession.
Under Section 24B of the Income Tax Act, you can claim a deduction for the interest amount you repay on your home loan.
You can also claim a tax deduction for an under-construction property on the interest you pay in five instalments for five years from the date of possession.
Personal Loans are unsecured and can fulfil multiple financial obligations such as medical emergencies, vacation plans, growing business, etc. You need not submit any collateral to avail of this loan. As it is an instant loan, it is considered the most convenient source of financial assistance compared to other types of loans.
You can claim tax benefits depending on what purpose you take the personal loan. You can claim deductions if you are using your loan to develop your business or renovate your home. If you are remodelling your own home, you can claim up to INR 2 lakhs on the interest paid towards your loan.
However, you cannot claim tax exemptions if you use your loan for commercial purposes such as purchasing electronic items, wedding expenses, vacation, etc.
You can take an education loan to meet the cost of higher education. You can avail of this loan for yourself, your children, or your spouse. Under section 80E of the Income Tax Act, you can claim tax exemptions for the interest amount you repay for up to eight years. However, you cannot claim deductions on your principal amount for this loan.
Getting a loan helps you aid your financial crunches and enables you to get tax benefits. However, it is also essential to take a loan only when necessary, as it requires a commitment to repay the loan amount on a timely basis. When you repay your loan on time, it increases your credit score, thereby increasing the chances of obtaining loans at lower interest rates in the future.