Tax benefits on a personal loan for salaried employee. You should know it

In India, while there aren’t dedicated tax benefits for salaried individuals on personal loans, there are certain cases where you can claim tax deductions based on how the loan is used. It’s advisable to take a loan designated for the specific purpose (e.g., an education loan for education) to ensure smoother documentation for tax benefits. Always keep evidence to validate the loan purpose for tax authorities. Here’s a summary of scenarios where you might be eligible for tax benefits on a personal loan:

1. Education Expenses
If you use the personal loan for education expenses for yourself, your spouse, or children, you can claim tax deductions under Section 80E. This applies specifically to the interest portion of the loan and can be claimed for a maximum of eight years or until the loan is fully repaid.

2. Starting a Business
A personal loan taken for business purposes can be eligible for deductions. Under Section 37 of the Income Tax Act, you can claim the interest paid as a business expense. This could reduce your taxable business income, making it advantageous for business-related loans.

3. Home Renovation
If the loan funds are used for home renovation or repairs, you can claim a tax deduction on the interest under Section 24(b). This deduction is limited to Rs. 30,000 per year.

4. Home Purchase or Construction
Personal loans used for purchasing or constructing a house can qualify for interest deductions. For self-occupied property, you can claim up to Rs. 2,00,000 per year. However, if the construction or purchase is not completed within five years from the end of the financial year in which the loan was borrowed, the deduction limit is capped at Rs. 30,000.
Important Consideration