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Three Occasions Where A Personal Loan Can Give You Tax Benefits

By Finserv MARKETS - Aug 27,2019
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Know how Personal Loans can give you Tax Benefits

Personal loans have slowly become one of the most popular types of loans being availed by customers. These are unsecured loans that are taken out by customers from a bank or lending institution for any form of personal need. Such loans are not secured against any form of asset. Borrowers do not put up any collateral such as property or gold to avail such loans. Common uses of personal loans include for refurbishing a house, education, vacation, wedding amongst others. Usually, borrowers get a flexible tenure of up to 5 years to repay the loan amount. This is why personal loans are preferred by customers as compared to credit cards or other loans.

However, there are usually no restrictions placed on the usage of funds availed from a personal loan, except for illegal activities. For instance, if you get a personal loan on Finserv MARKETS, the process of applying for a loan is paperless and absolutely instant. Bajaj Finserv Personal Loans, available on Finserv MARKETS, take around 3 minutes to be approved, and once they have been approved, you can expect the loan amount to arrive in your bank account within 24 hours. No hassle about collecting documents or waiting for funds to reach your bank account. Unlike other loans where the tax benefits are clear and simple, with personal loans, the tax benefits depend upon the usage of funds. Detailed below are three occasions where if you avail a personal loan, you can avail tax benefits.

1. Using funds from your personal loan for business expenses

One can avail certain tax benefits if they are using the funds availed from a personal loan for business expenses. These could be anything from purchasing new technology, equipment, hiring new staff, enhancing your working capital, opening a new branch or office, expanding business operations by launching a new product or service and several others. You are eligible for tax benefits in such a case as the amount you pay towards the loan can be stated as a business expense. This will reduce your share of taxable profit as well as reduce your tax liability at the same time, helping you save. Usually, there is no maximum limit prescribed on the amount of interest you can claim as a tax-deductible expense. Hence, you can use the funds availed from a personal loan to expand, grow or pay for business expenses while also enjoying tax benefits on the same.

2. Use funds from your personal loan for housing expenses

As per Section 24 of the Income Tax Act, if you use your personal loan to buy, construct or renovate a property, you can use the amount you pay as interest repayment as a tax deduction. Here it is important to note that the upper limit for this deduction is Rs. 2 lakhs in case you live in the house. If the house is being let out for rent, then there is no upper limit on the deduction. Furthermore, if you are aiming to claim this deduction you have to submit a certificate that has been issued from the borrower’s bank certifying that the loan amount has been used for construction, purchase or renovation of mentioned property. Investing in a renovation for your property can be a good way to increase its value for sale as well as for renting.

3. Use funds from your personal loan to buy assets

If you use the funds from your personal loan to purchase a valuable asset such as a car, shares, stocks, jewellery or anything else, you can consider the interest you will pay as a part of the cost of acquiring the asset. Now in such a case you will not get the tax benefits the year you avail the loan, but you can avail the benefits in the year that you will sell the asset. This is because when viewed as a part of the cost of acquiring the asset, the interest on personal loan reduces the capital gains one may earn by selling the asset. In addition to this, it also reduces the taxable sum.

Most personal loans such as those offered on Finserv MARKETS have a flexible repayment capacity. Bajaj Finserv Personal Loans offer customers a flexible repayment capacity of 12-60 months, ensuring you have a plethora of time to pay back your personal loan.

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!


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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522