The trend of instant personal loans is ballooning these days. All of this is possible because of the various instant personal loan platforms, and the Navi Instant app is one among the best of them. Due to the easy availability of personal loans, most borrowers, in times of dire need, go with this financing option. For whatever reason, one can apply for an instant personal loan like a wedding, planning a vacation, medical emergencies, higher education, or any other unplanned financial emergencies.

Although personal loans are quick to arrange, the fluctuation of interest rate always becomes a matter of concern for the loan applicants or borrowers. To overcome this, the government provides the tax benefits on personal loans, which is a great relief for the borrowers.

Tips to keep in mind for tax exemptions on Personal Loan

  • The loan consists of two components: the ‘principal amount’, and the ‘interest’. Each component of the loan is treated separately in the Income Tax Act 1961. The tax exemptions are given on both interest and principal amounts, like business loans, education loans, or home loans in some cases. However, for Personal loans, it is not the same. The tax exemptions on Personal loans are decided based on the end-use of the personal loan amount.
  • Another critical factor is the source used to apply for a personal loan, also the basis on which tax exemptions or tax deductions are allowed. It is preferable to take a personal loan from a recognised bank or legally approved Instant personal loan apps, or NBFCs. Here, your personal loan principal amount is counted as liability, and is tax exempted too.
  • At the same time, if you are borrowing money from your friend or family, in that case, the borrowed money is added to your gross annual income when it comes to doing income tax calculations.

Ways in which one can claim tax exemptions on Personal loan

  • Applied Personal loan for meeting business expenses

If the borrower has taken a personal loan to meet the immediate business expenses, both principal and interest amounts are part of the business liability. The interest amount which the borrower is paying is treated as an expense, and the deduction of the same will take place from the company’s net profit. It lowers the net profit of the company. There is no limit of interest amount set by the Income Tax authorities. So, all interest paid on personal loan amounts gets tax exemption at the time of filing ITR.

  • If you have applied Personal for construction or buying of a home

Section 24, Income Tax Act 1961, allows ‘deductions from income from house property’. It means that the funds utilised in such scenarios are likely to be deducted from the residential’s property net taxable income. A borrower is using the money for home renovation, construction, or buying of the new property. The borrower must attach the required documents to prove the use of money. The limit set for personal loan tax deductions is up to INR 200,000.

  • Personal loan applied for purchasing assets

 If you have taken the personal loan for investing in shares, purchasing jewellery, or any other form of non-residential asset, in that case, you cannot claim personal loan tax exemptions. The interest amount paid for that loan becomes a part of your net income. In case the borrower sells a particular asset for which loan is applied, in that scenario, the acquisition cost gets deducted from capital gains, which results in a reduction of taxable profit.

  • Check your Personal Loan eligibility before applying for a loan

At online marketplaces, you can check your loan eligibility using the online calculator. You need to fill in your personal information, income proof, and your loan amount requirement. Navi is an expert in letting you know your loan eligibility in a few clicks, and the best loan offers.

  • Closing note

Navi Instant Personal app makes it easier for borrowers to get instant funds with minimal documentation in times of financial emergencies. As mentioned above, it is clear that there are no certified guidelines for providing personal loan tax benefits in the prescribed Income Tax Act 1961. We have equipped a team of financial experts to suggest ways of claiming tax exemptions on personal loans to reduce the tax burden to some extent.


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Frequently Asked Questions

What is Section 80C of the Income Tax Act 1961?

Section 80C of the Income Tax Act 1961 came into existence on April 01, 2006.  Under this, the government allows tax exemptions for certain investments and expenditures incurred in the fiscal year. If you plan your investments well in the form of NSC, PPF, EPF, or LIC, you become eligible to claim deductions up to 1.5 Lakh, and reduce your tax liability to some extent.

Do Personal loans cover under Section 80C of the Income Tax Act 1961?

As of now, there are no clear guidelines on the same. At present, a borrower who is making a principal amount repayment is not allowed to make any claim for any exemptions under Section 80 C of the Income Tax Act. You can claim tax exemption only if the loan is taken from a recognised financial institution, and its purpose is a part of Income Tax deduction scenarios.

Is there any tax exemption on a personal loan for salaried employees?

The Indian Income Tax Act has given an allowance for various tax exemptions and deductions; both on principal repayment and interest payments for a home loan or education loan. But there are no tax exemptions on making repayment of Personal Loans.

Are there any tax benefits for the principal paid for the home loan amount?

 Yes, you can claim a tax deduction on principal repayment of the home loan amount annually from the gross annual income under Section 80C of the Income Tax Act 1961.

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