A personal loan does not count as an income as it is not taxable. And hence, it can be availed for the routine expenditure in times of crisis, without getting stressed out about tax charges. It is not necessary to disclose personal loan uses by the borrower in his income tax return. Usually, personal loans are known to assist people for their several not-so-tiny expenses such as buying a car, paying huge house rents, investing in the business, and so on. Personal loans have a tax-free nature, but when it comes to particular expenses, tax can be imposed over them. These are not a part of the income of the borrower.
How to get tax-free advantages of a personal loan?
Other loans might not be provided these many facilities as a personal loan offers to its candidates. It is financial assistance to the people in need of certain daily expenditures without having enough money to do savings in their accounts.
- Business investment: when the amount availed from the personal loan, it is treated as an expense. And it will decrease the liability of the tax needed to be paid by the owner. Therefore, if a person is wishing to commence a new business, availing a personal loan is beneficial.
- Construction: A person can apply for personal loans if he desires to build a residential property or to purchase new land. A benefit for a deductible amount in tax will be granted to the borrower, but the borrower is required to be the owner of that property to avail of the tax-free benefits in his account.
- Buying assets: A person can purchase any assets from the loan amount for getting tax-free benefits such as jewelry, shares, or anything. The person who avails the loan can get a tax deduction in the year in which he will sell that purchased asset. The withholding of tax will only be implied on the interest amount and not on the principal amount of loan.
Financial suggestions: Personal loans are available at a higher interest rate than other investments. They provide easy eligibility criteria to avail them to fulfill their business needs, like organizing a wedding or going for a vacation. The borrower does not need to give an explanatory clarification on where did he spend his borrowed amount from the personal loan. The financial institution or bank cannot pressurize him by asking the details by following certain guided lines towards the loan granted.