Top 4 Loans Which can Help You to Save Tax

Different types of Retail Loans are offered by banks & financial institutions that help you raise funds for various personal and professional financial needs. But apart from helping you with your monetary needs, certain types of loans also help to reduce your income tax liabilities.

Let’s take a look at 4 types of Retail Loans that come with income tax benefits:

1. Home Loan

Due to the high real estate prices in the country, most buyers rely on Home Loan to fulfill their dream of being homeowners. Apart from helping you realize your dream, a Home Loan can also help you save taxes in a few different ways as discussed below-

• Under Section 24(b) of the IT Act, the interest component of the home loan is eligible for a tax deduction of up to INR 2 lakhs in a financial year. However, this loan tax benefit is only available for self-occupied properties.

• Under Section 80C of the IT Act, a borrower can claim a tax deduction of up to INR 1.5 lakhs in a financial year on the principal component of the loan.

• If the Home Loan is availed under the PMAY scheme, the interest component is eligible for an additional deduction of up to INR 1.5 lakhs in a financial year under Section 80EEA of the IT Act. The value of the property should be INR 45 lakhs or less. 

2. Higher Education Loan

Several working professionals opt for higher education for career growth. If you’re taking an Education Loan to fuel your professional dreams, here’s how it can offer tax benefits-

• Under Section 80E of the IT Act, the interest component of an Education Loan taken for self or a relative is eligible for a tax deduction for up to 8 financial years or until the interest portion is fully repaid, whichever is earlier. Moreover, there is no limit applicable to this deduction.  

• An Education Loan taken from an Indian lender to fund foreign education is eligible for a 0.50% lower TCS (Tax Collected at Source).

3. Personal Loan

Personal Loans are multi-purpose loans that can be used for a variety of financial needs. While there is no direct loan exemption in tax for Personal Loans, you might be eligible for a deduction based on how the loan amount is used. For instance-

• Under Section 24(b) of the IT Act, you might be eligible for a tax benefit if the loan amount is used for home renovation or repairs.

• Under Section 43B of the IT Act, the interest portion of the Personal Loan can be treated as a deductible expense if the loan is taken for a small business.

4. Car Loan

Cars are treated as luxury goods as per Indian tax laws. Thus, there is no income tax benefit of a Car Loan if the vehicle is being purchased for personal use. However, if the purchase is made for professional or business use, you can claim the following deductions-

• The interest component of the Car Loan can be treated as a deductible expense.

• Self-employed professionals and business owners who’ve purchased the car for professional/commercial use can show it as a depreciating asset to reduce their tax liability.

• As can be seen, there are many loans with tax benefits. What matters is your knowledge of the tax laws and how you plan your taxes.

• You can consult with a tax advisor, as they can help you take advantage of the tax laws for maximum tax savings.

For Retail Loans like Home Loans, Personal Loans, or Vehicle Loans at competitive interest rates and zero hidden charges, trust AU Small Finance Bank.

The leading Small Finance Bank with branches across urban, semi-urban, and rural parts of the country can fulfill your loan requirements in the most seamless and hassle-free manner.

Read More: Know About Income Tax in India