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Loans are very suitable option to arrange for funds in times of financial requirement as well as there may also have some benefits of tax associated with them. Below mentioned 3 types of loan in which an individual can save tax while repaying the loan amount.
Tax Benefits of Home Loan:
A home loan is generally the longest term borrowing that an individual avails during his/her lifetime. Considering the 15-25 year tenure related to this loan, it's only natural that this loan provides the widest range of tax benefits among different types of loans.
The subsequent are the highlights of these benefits:
l. Under Section 80C –
To claim this deduction, the property should not be sold prior to completion of 5 years from the end of Financial year in which possession for the property was obtained and Tax deduction of upto Rs. 1.5 lakh can be availed for a loan taken for the purchase or construction/renovation of a property. This includes both the principal loan amount and therefore the miscellaneous charges such as stamp duty and registration fees.
lI. Under Section 24(b) –
Individual can avail benefit of loan under this section only when house is completed within 5 years from the end of the financial year in the same year loan has been taken. It should be noted that the losses that can be covered the head of 'House Property” are also limited to an upper limit of Rs. 2 lakh. The Limit of Interest on home loan up to Rs. 2 lakh can be claimed as an income tax deduction under this section.
lII. Under Section 80EEA - It is a special tax deduction up to Rs. 1.5 lakh that can be claimed on the interest component of a home loan, if the following conditions are met.
For instance, if you paid Rs. 60,000 as home loan interest, then the deduction you can claim for will be limited to Rs. 60,000 and not the upper limit of Rs. 2 lakh (u/s 24b) or Rs. 1.5 lakh (u/s 80EEA).
Tax Benefit of Personal Loan for Home Renovation
Home Renovation Loan can help you claim tax benefit of up to Rs. 2 lakh annually u/s 24(b), but only if the loan has been taken for the only purpose of home renovation. Under the section, tax deduction of up to Rs. 2 lakhs can be claimed on the interest component of such a personal loan.
Tax Benefit of Education Loan
Education loan not only allows an individual to pursue higher education, but can also help you save on the total tax outgo under Section 80E of the Income Tax Act, 1961.Education loans up to a certain limit can be obtained as unsecured loan while collateral will be required in case higher amounts are borrowed
This deduction is valid on the interest component of the loan only and not the principal. Any amount paid as interest on education loan can be claimed as a deduction at the time of calculating the total income for the assessment year (AY) in which the loan was taken. This tax benefit is applicable for up to 7 years or till the education loan is paid off in full - whichever is earlier.
Conclusion:
While tax benefits are often an add-on advantage of these loans, it's necessary to means that you simply should borrow only due to a selected need and not because there's a tax break related to the loan. Additionally, even in sight of the tax break on the interest paid, it's usually better to pay off loans as soon as possible to scale back the general interest outgo applicable to the borrowing. This is often because, within the future, the value of paying interest usually outweighs the tax benefits related to any loan.
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