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How to get TAX benefits from Loans in India


There are many taxes available in India, but very few know how to take advantage of them. Are you tired of paying government taxes? Do you take loans and still playing taxes to the Government? Are you on ongoing loans? Don’t know which Loan will help you with TAX redemption benefits?

Don’t worry. In this article, we will be going to understand everything about TAX benefits from Loans in India.

Common types of Loans

The fundamental objective of a loan is to get folks out of financial troubles or finance anticipated expenditures even if they do not have cash available immediately. Loans, as a financial instrument, are need-based in nature i.e. they are typically selected to suit certain goals.

For instance,

  • Get yourself a Home Loan for Buying or Building or Renovation

  • Education Loan for paying course fees for higher studies,

  • A Car Loan for purchasing a new car,

  • Business loan for starting a new venture or expanding the existing one,

  • Personal loan for emergency medical expenses/wedding, etc.

However, even while need-based, certain loans can offer special tax incentives that might lessen the overall taxes burden for the borrower. An individual can receive the following income tax benefits on certain loans:

Tax Benefits of Home Loans

What is Home Loan?

While a home loan is mainly regarded as a loan for the purchase of a house, such loans can also be acquired for the renovation of a house, acquisition of a plot of land for residential use, for the building of a house, etc.

With a house loan, an individual can gain the following tax benefits:

Section 80C Benefits – Apply for Home loan

Tax deduction of up to Rs. 1.5 lakh yearly for repayment of home loan principle. This incentive is not applicable to house loans for the acquisition (others) of residential. Additionally, this Rs.1.5 lakh limit is subject to the restrictions applicable to other qualifying investments /expenses under Section 80C (such as EPF, PPF, ELSS, life insurance premium, etc).

Section 24 (B)

Deduction of the interest amount towards the loan obtained under Section 24 (b). This part of the existing Income Tax Act demanded the criteria under which the borrower can claim a tax deduction on Home loan interest repayment.

Under Section 24(b), an individual can claim a deduction of up to Rs.2 lakh if they have taken a home loan whether for a self-occupied property or a let-out house.

Section 80EE

An extra deduction of the interest payment for a house loan is also permitted under Section 80EE of the Income Tax Act. This is an advantage provided solely to first-time home purchasers who are acquiring property through the affordable housing plan.

The ceiling of interest benefit under Section 80EE is confined to the maximum amount of Rs. 50,000 yearly. This clause first established in FY 2017 has now been extended to Home loans granted up to 31st December 2020 in Budget 2019 (subject to affordable housing requirements).

Tax Benefit of Education Loan Repayment

Higher education is vitally necessary to live in such a competitive society. However, the growing expense of decent education is a problem for many good students and their parents.

What is Education Loan?

Education loans are provided to students to assist them to afford their higher education expenditures. Apart from this, the government of India also gives various incentives like tax benefits to people who have availed of education loans.

You can enjoy the following tax benefits, if you take a education loan:

Section 80E

The deduction of interest payment towards the loan without any stated maximum under Section 80E of the Income Tax Act. The maximum duration over which you can enjoy the interest payback benefit of an education loan is 8 years.

During the study term, the lender would only charge basic interest on the education loan obtained.

Education loan providers give students a moratorium of up to 1 year following the conclusion of higher education or after getting a job, whichever is sooner. While not a tax advantage, this also lessens the loan burden for the borrower.

However, take note that there is no tax deduction benefit related to the student loan principal payments.

Tax Exemption on Business Loans

Business Loans

Business loans are often utilized by businesses and business owners to either establish new enterprises or extend the operations /scope of current firms. A business loan may be secured against property or equipment or it may be unsecured i.e. supplied without security.

You might also gain a few tax benefits on the repayment of business loans. The business loan interest amount returned is tax-free as it may be reported as part of the company cost but there is no tax benefit for the business loan principal repayment which is up to 28%

Tax Benefit of Personal Loans

What is Personal Loan?

Personal loans are unsecured loans i.e. there is no collateral required in order to take for a particular purpose.

Generally, a personal loan does not generate any tax benefit although there are a few exceptions to this general rule as follows:

Section 24(B)

Payments made towards the interest component of a personal loan, if recognized for the use of buying a home or home remodeling, are tax-deductible under Section 24 (b) of the Income Tax Act, 1961.

Payouts made towards the interest component during personal loan repayment, if recognized as allocated for company establishment /expansion, can be treated as business costs and provide tax benefits to the borrower.

Not only is there no tax benefit on the principal payment of the personal loan even in the above instances, but in all other cases, this form of loan also does not give any tax benefit.

Tax Benefit of Auto Loans

What is Auto Loans

Car loans and two-wheeler loans are for the purpose of vehicle purchasing. If such loans are made for the purchase of personal automobiles.

There is no tax benefit from the loan. The issue is a bit different if the auto loan is arranged for purchasing commercial vehicles such as those required by transport and logistics organizations. The interest paid to service this form of automobile loan /two-wheeler loan might qualify as business expenditure incurred in operating /expanding the firm.

This is deducted from the gross revenue of the firm and offers tax benefits on a vehicle loan and two-wheeler loan to the borrower.

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