Personal loans have two tax advantages provided you use it for business and home renovation or construction
Personal loans are traditionally regarded as a borrowing of the ‘last resort’. This is largely true. The interest rates on personal loans exceed most other types such as housing loans or loans against shares. This is because personal loans are not backed by any specific assets. Their repayment depends entirely on how creditworthy you are. However, there is some silver lining to this scenario. Personal loan interest can get you two tax benefits.
IF YOU USE THE MONEY FOR YOUR BUSINESS
The interest on the loan can be claimed as a business expense and thereby be used to reduce your income tax liability.
IF YOU USE THE LOAN FOR THE CONSTRUCTION/REPAIR/RENOVATION OF YOUR HOUSE
In this case as well, under Section 24B of the Income Tax Act, the interest on the personal loan is deductible from your taxable income up to amount of Rs 2 lakh. This limit now applies irrespective of whether the house is self-occupied or rented out.
Interest Rates on personal loans with major banks:
|Bank||Personal Loan Rates|
|State Bank of India||11.6% – 15.10%|
|HDFC Bank||14.75% – 20.7%|
|ICICI Bank||10.99% – 22%|
|Axis Bank||15.5% – 24%|
|Kotak Mahindra Bank||10.99% – 24%|