Learn how to leverage different types of loans for maximum tax benefits in your financial planning. Discover the tax advantages of home loans, education loans, and business loans, and find out how personal and car loans can also offer some tax benefits.
Ever dreamt of owning your own home? Home loans are often the ticket to make this dream come true. You can also save tax on the interest you pay on a home loan. However, it’s not home loan alone that helps you to save tax. You can also claim income tax deductions on other loans.
With a careful financial planning you can leverage the loan repayments to save tax. Here are a few ways to claim maximum tax benefits with loan repayments.
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Benefits of Home Loans
As the Income Tax rules, both the principal and interest payments on home loans qualify for tax deductions. You can deductions up to Rs 1,50,000 for the principal repayment under Section 80C of the Income Tax Act. If the property is self-occupied, Section 24 lets you claim a deduction up to Rs 2,00,000 on interest payments. Additionaly, if you meet certain conditions, you could also take advantage of more benefits under sections 80EE and 80EEA.
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The Perks of Education Loans
Education loans aren’t just a means to fund higher studies. They come with a hidden perk- tax benefits. The interest paid on education loans can be deducted from your taxable income.
Indian tax laws are particularly supportive of education loans. Section 80E of the Income Tax Act permits tax deductions on loan interest, provided the loan is taken from a recognised bank or a financial institution. The deduction is valid for up to 8 years, or until the full loan repayment, whichever comes first.
Boost Your Business and Your Tax Savings
Got your sights set on starting or expanding your own business? Business loans can be your financial rocket fuel. The best part is the interest paid on business loans can usually be written off as a business expense. This could reduce your taxable profits and, in turn, your tax liability. Just remember to keep your paperwork straight and use the loan only for business matters.
Personal and Car Loans
Personal loans are the go-to solution for immediate financial needs like consolidating debts, funding a wedding, or a medical emergency. However, these loans don’t typically offer tax benefits on the interest you pay. There are exceptions, though. For instance, if you spend your personal loan on qualified home improvements, you could claim a tax deduction on the interest paid.
For the car loans, the tax perks are limited for personal use. But, if you use the vehicle for business, you could claim tax deductions related to depreciation and operating expenses.
