As more people become aware of the benefits of availing a personal loan, it has gained much momentum in the financial market. After all they are the most sought-after loans in the unsecured category. Why? Personal loans are easy to apply, quick to process and do not require any collateral/guarantee. Financial and Non-Banking Financial Institutions (NBFCs) do not ask any information regarding the usage/application of this loan. This implies, you can utilize the amount for any financial commitment.
But there is a general doubt regarding the tax benefit aspect for such loans. The question is, can one enjoy tax benefits for such loans? If yes, then how? Now that the question has been brought to light, let us discuss how:
Possibility of tax saving:
If the loan taken is utilised as a top-up home loan or is utilised towards the down payment of the home loan, then it can help you save taxes. Under Section 24(B) of the Income Tax, 1961, any loan that has been taken to fund the purchase of a house is entitled for tax savings. Since the act does not specify the category of loan. Any loan that is taken to purchase or reconstruct a house is eligible for tax benefits. Section 24(b) allows deduction of interest on your home loan and the limit for the same is INR 2,00,000 for self-occupied house.
How much tax rebate can be availed?
Under Section 80C of the Income Tax Act, 1961, the tax benefit is restricted only to the principal amount of your home loan. Also, there is a cap as to how much tax saving one can avail. Under Section 80C, the limit is Rs 1,50,000. If it is a joint property, then the same tax rebate would get divided between the owners. The important point to remember under this section is that the benefits can be availed only up to the prescribed limit.
What else is covered?
If a home renovation loan is taken, then also an individual is eligible for tax benefits. The interest that is paid for anything pertaining to the reconstruction, extension or repair work of the house is eligible for tax break. Even after getting a property loan if you want to make some more changes to your home and need capital for it, personal loan paves the way.
Documents that are needed to avail tax benefits
To avail the tax benefits, it is important that you furnish all the bills that are from the renovation or down payment. Furnishing these documents makes the process easier.
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