Which Loans Come Under 80c?
A Personal Loan is a form of debt that can be used to fund various expenditures like a home renovation, medical expenses, wedding expenses or even travel. These loans can also be utilised for funding business activities. In such cases, the interest paid on personal loans is considered as a tax-deductible expense under Section 80c of the Income Tax Act. In this way, individuals can reduce their tax burden to a considerable extent by planning their loans well and using them for the intended purpose.
Which loans come under 80c?
There are several types of loans that qualify for tax benefits. While most of them are investment-based loans such as PPF, EPF, LIC, and Equity-Linked Savings Scheme (ELSS) that can be claimed for deduction under Section 80C of the Income Tax Act, there are some specific loans that also offer tax benefits to the borrower. One of the most popular loans among them is a Home Loan, wherein the interest on the principal amount is exempted from tax liability.
Similarly, personal loans can also be utilised for funding educational expenses for children, spouse or parents, and the interest paid on them is tax-deductible under Section 80E of the Income Tax Act. These loans can be availed for a maximum of eight years or until the debt is repaid.
Another type of personal loan that offers tax benefits is when it is utilised to purchase assets such as jewellery, non-residential property or shares and stocks. In such a scenario, the interest component added to the asset's acquisition cost helps in reducing capital gains upon its sale.
Personal loan interest is also eligible for tax exemption when it is utilised to fund a business venture. The interest paid on the personal loan is added to the business's profit and thus deductible from the company's net taxable profits at the time of filing ITR. This can significantly lower the company's tax liability.
Apart from these, personal loan interest can also be claimed as a tax exemption when it is utilised to repair/renovate the house. However, the borrowed funds must be used for a residential property and not a commercial/office space. Moreover, the loan must be taken from a bank/lender and not from a friend or family member. For more details, it is best to consult a tax professional.
