How To Claim Income Tax Benefit On Loans
There are general misconceptions about loans. They are considered draconian, and elders in the family would often advise against them. In our society, if someone is borrowing for any purpose, that reflects a financial strain. However, there are many advantages in the form of tax-saving benefits. They can ease the burden of the repayment. Before getting to how you can claim the tax benefit on your loan, you need to understand the type of loans that exist and the tax benefits they offer.
Broadly, there are four types of loan which can be classified as under:
TYPES OF LOANS AND THEIR TAX BENEFIT:
It is a dream for every individual to buy a house. The government launched the “Housing for All by 2022” campaign under the Pradhan Mantri Awas Yojna (PMAY). You are entitled to deductions under various provisions of the Income Tax Act, such as Section 80EE and Section 80EEA.
At some point, every individual’s dream is to fund their own higher education in the best of schools or colleges. There are tax benefits to an education loan that you can claim in the form of tax deductions under Section 80E.
Your tax benefit depends on the end-use of the money you borrow through this type of loan. You can use it for business expansion or refurbishment of your home. Depending on that, you can get the tax benefits and reliefs under Section 24 of the Income Tax Act.
You can benefit from this type of loan if you are self-employed and wish to purchase a car for business. The interest towards repayment of this loan can be shown as business expenses, and you can claim deductions in respect of it as per Section 80C Income Tax Act. The government in Union Budget 2019 introduced Section 80EEB wherein you, as an individual tax-payer, can claim deductions regarding this loan availed towards the purchase of an electric vehicle.
HOW TO CLAIM TAX BENEFIT ON LOAN:
Depending upon the type of loan you have availed, you can claim income tax benefits and save up towards repayment of your loan. All you need to know is the applicable provisions and the eligibility criteria while claiming tax benefit on a loan when you are filing your tax returns. You have to fill in the loan details and claim deductions in your taxable income. The following provisions applicable against the kinds of loan are:
- SECTION 24: This provision allows a tax deduction for all home purchasers on the home loan interest with a limit of Rs. 2 lakhs.
- SECTION 80EE, 80EEA: The benefit of tax deduction under these provisions can be claimed in the case of a housing loan, especially for a first time home purchaser. These provisions will give you additional tax benefits and can be claimed only once the limit under Section 24 is exhausted. However, Section 80EE and 80EE cannot be declared simultaneously, and you can claim only one of the two if you are a first-time home purchaser.
- SECTION 80C: Under this provision, you can claim maximum tax deduction within the limit of Rs. 1.5 lakhs towards the home loan principal and if investments are made by you made in different forms.
- SECTION 80E: Under this provision, you can claim tax benefit on the interest paid on the education loan, and there is no limit fixed on the amount you can claim.
The benefit to availing of loans is that they bring you a step closer towards achieving your goals and help you save tax and get certain tax reliefs. Loans help you get tax exemptions and encourage you on your spending. However, while seeking tax benefits on any loan, you have to be prudent about the type of loan and the criteria you fall under to enjoy the benefits of tax saving.
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