Tax Planning On Loans


taxsavingtips_loanyantraMake some great tax deals on your loans!

Yes, Tax planning month is here. Take the expert advice for tax planning before you pay the late fees. 

Let us dive in for the perks when you are in different loans.

Tax Planning On Home Loans

Owning a home is a coveted dream. However, the ever-rising real estate prices make it difficult for many to buy a home, or even a piece of land, with just his/her savings. Home loans are meant for bridging this gap. Home loans come with a lot of fringe benefits in the form of tax breaks.

How do you benefit?

Anyone with home loan can avail tax benefits in two ways. The amount paid towards the principal repayment qualifies for deduction from income under Section 80C of Income Tax Act.

Another benefit comes in the form of deduction for the amount paid as interest on the home loan. The maximum amount you can claim as interest deduction from your income for a self occupied property is Rs 2 lakhs.

If you buy more than one property, only one house can be counted as a self-occupied property, and the others are deemed to be let out (even if they are not let out).

In case the loan is jointly availed between you and your spouse, the deduction of Rs 2 lakhs can be claimed by both of you.

taxplanning_loanyantraIn case of properties that are deemed to be let out or are actually let out, the entire amount (no ceiling of 2lakhs here) paid as interest is admissible as deduction under Section 24B of IT Act, while the rent received gets added to your income. In spite of that, it turns out to be a good bargain.

Tax payable Tax payable when availing home loan Tax payable when availing two home loans
Total income 8,00,000 8,00,000 8,00,000
Rent income Nil Nil     80,000
Deduction under Section 80 C 50,000 50,000 50,000
Principal amt deductible under Section 80 C Nil 15,000 15,000
Deduction under Sec 24B (Interest)    Nil   1,05,000   2,10,000
Total income on which tax  is payable 7,50,000   6,30,000   6,05,000
Tax paid   75,000      51,000       46,000

Tax Planning on Educational Loans

Education loans pave the way to your future.  Education loans could be availed for studying in India or abroad. But to get tax benefits from an education loan, the loan should be availed from any scheduled bank or notified financial institution.

Education loans can also be availed for self, spouse or children.  The legal guardian of any student can also avail this loan. Hence parents or spouses can also claim deduction for payment of interest.

How do you benefit?

Section 80E of Income Tax Act offers tax benefit for those availing educational loans for higher education.

However, as against home loan, only interest paid towards the repayment of loan earns deduction and not the principal. Also, there is no upper limit fixed for interest repayment. 

Tax benefit can be availed for a maximum of 8 years or on the loan repayment term, whichever is applicable. For example, if the entire loan is repaid in 6 years, then the tax benefit is also limited to that term.

Tax Planning On Car Loans

Not many know that car loans come with tax advantages. However, all car loans do not come with tax benefit. A car loan is a good tool for the self-employed to claim some tax deduction. If used right, offsets the interest paid over a depreciating asset.

How do you benefit?

Deductions from payable tax through a car loan can be availed only if you are a business man and declare the profit or capital gains earned from your business.

Another condition attached to this is that the vehicle has to be purchased in the name of your business. In that case, you get exemption on the interest as well as depreciation of the vehicle.

Under these conditions, you can include the interest paid for your car loan for tax exemption.

Besides this, businessmen can avail deductions on personal loans too under certain conditions, like the loan being taken as a business loan or for capital investment in business.

Loans taken wisely and within our limits would save us from a never ending debt spiral, which many fear. While loans affect your monthly as well as annual finances for other expenditures, the beneficial side of it in the form of tax saving, reduces their overall impact considerably.





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