Indian Income Tax Act allows for tax deductions and exemptions on interest and principal repayment of certain loans. These tax benefits are a definite motivator to individuals as it helps reduce the outflow of funds which may rather be associated to one’s financial goals. The following are some of the provisions that offer a sigh of relief to individuals for tax planning.
Apart from the above provisions, deductions can be claimed on a personal loan if the following conditions are met:
- Business Purpose
If the personal loan is taken for business activities then the interest accrued on the aforesaid loan can be deducted as an expense under the head “Income from Business and Profession”
- Purchase of an Asset
The amount of personal loan invested in the purchase of an asset (other than property), the interest expense is added to the cost of acquisition which reduces the liability of capital gains at the time of sale.
At the end of every financial year, tax payers make frantic investment decisions to deteriorate their tax liability. Apart from the investment products that are widely acknowledged, an optimum use of other provisions can have a remarkable impact on one’s overall tax burden. It, thus, becomes crucial to have a systematic plan from the start of the financial year, in order to reap maximum benefits and accelerate the gap between desiring and achieving the goals.