Advantages of Tax on Different Types of Loans

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Advantages of Tax on Different Types of Loans

In general, people request for a loan in order to accomplish some of their necessities like purchasing a new house, taking a loan for the education of their child, purchasing a car and many other valid reasons. After taking certain amount as loan, the person needs to pay an interest on a monthly basis. The interest shows impact on your monthly and annual income other than the normal expenditures. On the other hand, there is a great advantage of taking loans i.e., the employees could save their tax.

The Income Tax department has introduced an amazing benefit of deducting the taxable amount for the loan payers. The people who are repaying loans from their annual or monthly income, they could save their tax as well. Based on the type of loan, the users can get different tax benefits. Here is a detailed description regarding the Tax benefits on different types of loans. Have a glance!

Advantages of Tax on Different Types of Loans

Tax Benefits on Home Loans

The individual who acquired a home loan for buying a property, they can get tax deduction on interest as well as principal amount. The individual who has acquired loan for purchasing a home or property, they can get tax deductions on the principal amount as well as the interest amount of the loan. After the completion of construction of the property, the basic value of the property will turn out to become actual market cost for the sale of the property or the flat.

As per the Section 24 of the Income Tax Act, the individuals can get various tax benefits on the interest paid for the main principal amount of the loan acquired. If an individual acquires loan for making some renovations or repairing the property, they can get tax deductions as per the Section 24(b) of Income Tax act, 1961.

If you are seeking for a loan to construct or purchase a property, they can get a deduction of about Rs. 2 lakhs for the interest. If you had not completed the construction within 3 years from the end of fiscal year, the benefit of the interest cut off from 2 Lakhs to Rs 30 thousand only. This way, the people can get various tax benefits from the different types of loans.

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Tax Benefits for Educational Loans

Usually, the children who are seeking to go for higher studies can get an education loan. After the completion of their education, they can repay the loan amount once they get a job. If you take loan for education, you need to pay the interest only for the repayment and you need not pay the interest for the principal amount. As per the Income Tax Act, 1961, this deduction is valid only for the person who goes for higher education with no set upper limit.

Higher education means pursuing any course after Senior Secondary School Level in India or other countries. The individual can get a tax benefit for a maximum period of 8 years. If the individual pays the education loan within a period of 5 years after the completion of the course, the individual can acquire the tax deduction benefit.

Tax Benefits on Car and Personal Loans

If you are an employee with fixed salary, you won’t get tax benefit for taking a loan for the purchase of a car. The individuals can get a deduction from the payable tax amount if they are business persons or self-employed individuals. You can also get tax exemption for the interest of the vehicle. If you wish to get tax exemption for your vehicle, you need to get finance via home loan.

In order to get a deduction on the personal loans, the individuals need to show that they own a business or some other self-employment. They need to show the proof of their income.

These are the various tax benefits for different types of loans acquired by the individuals.

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