Loans are always considered a burden because of the interest costs one has to incur on them. It takes quite a bit of time to repay the principal if you stick to the loan tenure. However, there are loans that come with great tax benefits. These benefits will reduce the stress caused by those EMI payments. Want to know more? Read on.
Going for higher education? If you take a loan for funding it, you can get tax benefits for it under section 80E of the income tax act. Only individuals can claim a deduction under this section. The loan can be taken for education of self, spouse or children or even an individual whose legal guardian you are. In this context, higher education will include those regular courses that are pursued after the completion of the senior secondary level. Since 2009, the government has also included vocational courses. The course can be within India or outside India.
Under this section, you can claim only the interest that you repay for the education loan as the tax deduction. There is no limit to the amount of interest that you can claim. There is no tax deduction for the principal repaid. The deduction is over and above the other deductions that you might claim including those under section 80C.
The education loan can be from any registered financial institution or approved charitable institution. Unlike home loans, you cannot claim interest on loans taken for higher education from relatives or friends. The tax benefit is available for eight years. This period will begin from the year in which you started paying the interest on the education loan. However, if the loan tenure is less than eight years, you can claim tax benefits only for the loan tenure and not eight years.
In order to claim this tax benefit, you need to get a certificate from the institution from which you took the loan. This certificate will state the amount of principal and the interest that has to be repaid. You can give it to your employer for claiming the tax deduction or you can claim the deduction when you file your taxes. This shouldn’t be confused with children’s tuition fee that can be claimed under section 80C.
Not many people know that you can claim interest paid on personal loan as the tax deduction. When is this possible? If you run a business and took a personal loan in the name of your business, you can claim this as an expense and reduce it from your net profits. There are no limits to the number of such expenses that you can claim. Another case is where you take a personal loan for home purposes. This could for the down-payment of your home loan, for home renovation or for purchasing/constructing a home. You can use section 24 to claim tax benefits in this case. In these cases, you should have the proof that you used the loan for the purpose of buying or renovating a home.
Home loans give you the maximum tax breaks among all investments. You can claim as much as Rs 4 lakh as tax deduction if you get a new home using a home loan. How? You get Rs 2 lakh as tax deduction under section 24 for the interest repaid, Rs 1.5 lakh under section 80C for the principal repaid and R 50,000 under section 80EE if you are a first time home buyer and you purchased the home for self-occupation. Read this post – What Are Various Income Tax Benefits On Housing? – for more information.
Even car loans can be claimed as tax deduction if they have been taken for business purposes. So, don’t forget to claim these tax breaks the next time you take a loan.