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How do loans help us save income tax in India?
Have you ever wondered how loans help in tax saving, and in what situations? The provision for tax deduction on payment of EMIs on home loans or personal loans has been made in order to make housing more affordable. Various sections of the Income Tax Act, 1961, have provisions under which the taxpayer can claim tax benefits on repayment of loans. So how do loans help in saving tax? Here are a few ways.
Under Section 80EE
If you have purchased your first house through a home loan, you are eligible for tax benefits of upto Rs. 50,000on the interest paid on your home loan under Section 80EE. There are, however, a few conditions that you must check before claiming deductions under Section 80EE. Deductions under 80EE are applicable only if:
- You have taken a loan from a bank or a non-banking financial institution
- The stamp duty value of the house does not exceed fifty lakh rupees.
- The amount of loan sanctioned for acquistion of the residential house property does not exceed thirty-five lakh rupees.
- The loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2016 and ending on the 31st day of March, 2017
- You do not own any other house except the one for hiwhc you have availed the home loan.
Click here to use - Income Tax Calculator
Under Section 24
Section 24 is applicable on home loans availed for a property on which you currently reside. The deduction is applicable on repayment of loan interest and limit of exemption is Rs. 2 lacs.
Under Section 80C
Section 24 and Section 80EE make provisions for deduction on interest repayment on loans. Under Section 80C, however, you can claim deduction on the repayment of the principal amount of your home loan. The limit for exemption under 80C is Rs. 1.5 lacs. Section 80C is applicable under following conditions:
- The home loan has been availed for construction or purchase of new property
- The property has not been sold within five years of purchase
- If the property is sold within five years, the taxpayer will have to repay the exemptions claimed on the home loan in the year in which the property was sold.
Under Section 80E
If you have taken an education loan, you can claim deductions of any amount paid by way of interest. There are a few conditions under which you can claim benefits under 80E for educational loans:
- The loan must be availed under the name of the taxpayer for the purpose of financing his higher education or for the purpose of higher education of his relative
- Deductions can be claimed only for 8 years
Tax benefits on personal loans
You can claim tax deductions on personal loans in certain cases. These pertain to acquisition of assets or renovation or construction of houses. In case of house improvement and construction of property, you can claim deductions under Section 24 and Section 80C as mentioned above - so yes, if personal loan funds are used towards these purposes, you will be eligible for exemptions under Section 24 and 80C.
Additionally, if you avail a personal loan for business, the interest component of the loan repayment is eligible for deduction. The interest is deducted from the profits made through the business, thereby reducing overall tax liability. On the other hand, if the personal loan is used to acquire an asset, such as stocks, jewellery or property, then the interest component can be listed under cost of acquisition of the asset, which results in reduced capital gains when the asset is sold. This, in turn, reduces your tax liability.
Conclusion
So this is how loans help in saving tax in India. Taxes can be saved in different ways. The Invest 4G Plan from Canara HSBC Life Insurance is an excellent ULIP which helps you make tremendous savings on tax. The Invest 4G plan allows you to save taxes on premiums paid towards the policy under Section 80C, and on the withdrawals made through the policy under Section 10(10D). Opt for the Invest 4G plan and start saving on your taxes today.
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iSelect Guaranteed Future Plus
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Start Young, Pay Less, Stay Secured
Young Term Plan
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