Four types of loans that can help you avail of a tax benefit

7 MinsSept 24, 2021

There are times in life when we need money for a certain purpose – pursuing higher education, buying a dream home, renovating the house, purchasing a car, for a vacation, for business, and so on. In such situations, availing of a loan may be a worthwhile solution.  You see, certain loans not only help fulfil your needs or desires sooner but also offer you, the borrower, tax benefits. Yes, you read that right!

help avail tax benefits

Here are loans that can help you avail of a tax benefit:

(1)Home Loan:
Owning a house brings a sense of financial security and pride. It is not just a financial goal, but an emotional one too. It is an asset that you can pass on to generations. 
However, given the high property prices (in certain regions), self-funding your home may be tough and this is where a  Home Loan can come in handy. 
The interest repayment on the home loan is eligible for a deduction of up to Rs 2 lakh per financial year under Section 24(b) of the Income Tax Act, 1961, if it is a Self-Occupied Property (SOP).
The principal portion of the  home loan EMI can be claimed as a deduction under Section 80C up to a sum of Rs 1.50 lakh per financial year. 
Moreover, if you are a first-time homebuyer, availing a home loan under the Pradhan Mantri Awas Yojana -Urban (PMAY-U) you can get an additional deduction from the Gross Total Income (GTI) for the interest paid on the loan for an affordable house under Section 80EEA up to Rs 1.50 lakh per financial year, subject to certain conditions.  Note, deduction under Section 80EEA is over and above the deduction of Rs 2 lakh available under Section 24(b). Therefore, in total, you can claim a deduction of up to Rs 3.50 lakh per financial year for interest paid on the home loan, if it is under the affordable housing category. 
Use Axis Bank’s Home Loan Tax Saving Calculator to get a sense of the income tax benefit you can avail of by taking a home loan. It is an automated tool that makes loan planning easier for you.
Apply for Home Loan from Axis Bank here and fulfil your dream of owning a dream home.


(2) Higher Education Loan: 
Education – which is a personal long-term investment – holds the potential to generate returns like no other. It could enable you to rise in your career, elevate your standard of living, live a respectable life, and accomplish financial goals. 
That said, quality education has become dearer. While you or your parents may have planned well for this personal goal to an extent, the pace of wealth creation may not have kept up with inflation in education. And here’s when availing an Education Loan would come in handy, prove to be a valuable resource.
The Interest paid on a higher Education Loan is allowed as a deduction under Section 80E of the Income-Tax Act, 1961, to an individual assessee. 
The deduction is available from the year you start paying the interest on the Education Loan and the 7 immediately succeeding financial years or until the interest is paid in full, whichever is earlier. In other words, the deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. The deduction is available on a loan taken for yourself or for your relative.
Note, there is no limit on the maximum amount of interest that is allowed as a deduction. But repayment of the principal amount (which is the second part of the EMI), is not eligible for a tax benefit Use Axis Bank’s Education Loan Tax Benefit Calculator to check your tax savings. Apply here for an education loan from Axis Bank.. There is an added benefit of lower Tax Collected at Source (TCS) for foreign remittances if the education loan is availed of for overseas education. The Budget 2020 introduced a TCS at the rate of 5% on all remittances above ₹7 lakh. This also applies to money remitted to foreign universities. However, if you are avail of an education loan from a financial institution in India to pay for foreign education, then you are subject to a lower TCS rate of 0.5%

(3) Personal Loan:
A Personal Loan provides easy access to money when you need it the most. It can be availed for whatever be the purpose: wedding expenses, home renovation, to fund a vacation, medical emergency, etc. That’s why a Personal Loan is rightly referred to as a “loan in need”; or your financial lifeline.
Moreover, it is an unsecured loan; which means you do not have to pledge or mortgage your existing assets to avail of a Personal Loan. The loan is granted taking into consideration your credentials, such as whether you are salaried or self-employed, live in your own or rented accommodation, the nature of work, the type of organisation you work at (whether proprietorship, partnership, private limited or public limited), your residual working lifespan, your financial stability, and your repayment capacity (exhibited by your credit score). The maximum Personal Loan you can take is Rs 15 lakh (while the minimum is Rs 50,000).  Usually, there is no direct tax benefit on a Personal Loan per se. However, if a Personal Loan is taken for a particular purpose, such as for a small business where the interest on the personal loan can be claimed as a deductible expense (under Section 43B), or for house repairs/renovation then possibly a tax benefit under Section 24(b) may be claimed. Avail of a Personal Loan from Axis Bank when you need it the most!

Also Read:Learn More About Axis Bank’s 24x7 Personal Loan

(4)Car Loan:
A Car Loan  is an easy way of owning your dream vehicle. If you are a self-employed professional or a business person, you can even claim a tax benefit on the interest paid on your Car Loan. To be eligible for this, the loan should be shown in the books of accounts of the business or profession and the interest paid on the Car Loan should be claimed as a deductible expense under Section 43B of the Income Tax Act. Hence, make it a point to ask your bank for the interest certificate for the Car Loan.
So, say your income from business or profession is Rs 30 lakh and interest paid on the car is Rs 1.80 lakh in the financial year, the interest paid on the Car Loan will be allowed as a deductible expense. Keep in mind, only the interest paid on the loan is a deductible expense, not the principal portion of the EMIs.
Moreover, the depreciation benefit under Section 32 of the Income Tax Act can be availed, which will reduce the taxable profits further. If you buy the car before September 30, you can claim depreciation of up to 15% of the price of the vehicle. But if you buy a car from October 1 onwards, you can only claim 7.5 % depreciation on it, since the taxman treats it like half a year.
That being said, the Income Tax Assessing Officer (AO) has the discretion while granting the tax benefit. If AO believes that the car has not been used for business or profession, the deductions may be disallowed.  
Further, interest taken on loan for purchase of electric vehicle is allowed as deduction under section 80EEB. The limit for deduction is Rs 1.5 lakh.

Borrowing money is not bad. All you need to do plan diligently, follow the necessary financial discipline, and repay the loans on time.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision