Tax Exemptions With Personal Loan!

Benefits over deductions with personal loan

Benefits over deductions with personal loan

Personal loans can be used for a variety of purposes such as paying off for marriage, medical expenses, renovating your house, supporting your child’s education, or even paying back an existing loan. Yet, there is an innate amount of difference in applying for a loan via a bank or an NBFC or a loan aggregator.

Loan aggregators meet the right bill with the borrower’s profile. They help ease your repayment process. Buddy Loan counter gauges this with an innate objective for every person to clear their financial crisis.

Let us understand that the interest rate on the personal loan is the foremost important thing to consider before applying for a loan.

The best takeaway of personal loan: the lower interest rate 

Interest rate is the rate applied over the borrowed amount by a bank or NBFC (Non-Banking Financial Corporation). One of the most important factors that you must consider before getting a personal loan is the interest rate.

Personal loans can be used for a variety of purposes such as paying off for marriage, medical expenses, renovating your house, supporting your child’s education, or even paying back an existing loan.

Loan aggregators meet the right bill with the borrower’s profile. They help ease your repayment process. Buddy Loan does have an amicable interest rate starting at 11.99% p.a.

If you are planning to apply for a personal loan in different banks, make sure to compare their rate of interests before settling on any offer.

Types of Interest Rates on Personal Loans

Two different types of interest rates that may be applied to personal loans. These include:

  • Fixed Interest Rate

If you have a loan with a fixed interest rate, your rate of interest would remain constant throughout the tenure of the loan. This means that your monthly EMI would also be the same throughout the period of loan repayment. This type of interest rate is useful for planning your monthly expenses in the long run.

  • Floating Interest Rate

If you get a loan with floating interest rates, your rate of interest will constantly keep changing depending on the current market conditions or the internal benchmark decided by the bank. As a result, your monthly EMI will also fluctuate and may increase or decrease with each month. 

What Is the interest rate on a personal loan?

Most of the lenders take different factors into consideration for deciding the rate of interest for a particular application. Let us examine how the interest rate of a personal loan varies depending on the type of applicants.

  • Self-Employed & Salaried Professionals

Whether the borrower is salaried or self-employed affects the interest rate to a great extent. Salaried employs with a stable career record with reputed organizations usually get personal loans at a much lower interest rate that an applicant who is self-employed.

This is because the lenders believe that someone with a steady income and job security has better ability to pay back the loan amount. However, self-employed professionals with a good credit score and healthy bank record can obtain personal loans at competitive rates as well.

  • Women

A large number of banks tend to provide preferential interest rates to female applicants. This is done to promote female salaried professionals and entrepreneurs to be financially stable and fulfil their dreams.

  • Pensioners

Pensioners also have special personal loans meant specifically for their category. These loans are also usually provided at lower interest rates, especially from public sector banks. This is especially true in cases where the applicant’s pension account is held with the same bank as the loan applications 

Tax Exemptions With Personal Loan!

 

Should you avail tax exemptions on a personal loan?

The answer to the above question would be, Yes! One can certainly avail tax benefits or tax exemptions on a personal loan. Personal loans can be used for a variety of purposes such as paying off for marriage, medical expenses, renovating your house, supporting your child’s education, or even paying back an existing loan.

Loan aggregators meet the right bill with the borrower’s profile. They help ease your repayment process. Buddy Loan counter gauges this with an innate objective i.e. to help clear their financial crisis.

Understanding tax benefits for personal loans

The IITA or the Indian Income Tax Act allows an individual or an organization for various tax exemptions and deductions on the mentioned principal repayment amount. Also, the expenses on interest for a personal loan can be subject to the tax deduction. It is said personal loan can be an education loan, home loan, medical loan, etc.

Certain circumstances allow deduction on the interest expense of the personal loan, which is based on the purpose for which the loan was availed in the first place.

Claiming tax benefits on personal loans

The IITA allows income tax deductions on the interest paid for personal loans. Provided that the said loan was/had been availed for the purposes mentioned below:

1.  For business purposes

2.  For purchase or construction of a residential property

3.  For improvement of a residential property

4.  For purchase of any other asset

1 – For business purposes

The interest paid or to be paid on a personal loan can be claimed as a tax-deductible expense provided that the proceeds of the loan are proposed to be invested in the business of the borrower.

Before calculating the tax liability, the interest paid can be deducted from the profits, which will result in reducing the net taxable profit of the business and thereby reducing the tax liability. It should be kept in mind that there is no prescribed maximum limit for the interest amount that can be claimed as a tax-deductible expense.

2 – For purchase or construction of a residential property

The borrower can avail tax deduction under Section 24 if the amount of the loan is used for the purchase or construction of a residential property.

If an individual takes a loan for construction or purchase of a house, then under Section 24, the interest accrued on the loan amount is allowed as a deduction from the NAV or Net Annual Income (Net Income) of the house or property. The maximum amount to be deducted is INR 2,00,000 for let-out, self-occupied, and deemed to be let-out property.

3 – For improvement of a residential property

Under Section 80 C, an individual can claim for a deduction of an amount of up to INR 1,50,000. The condition is that the proceeds of the loan should be focused on the renovation or improvement of the property. Better yet based on the credit history there are high probabilities of increasing tax benefits. Do check with your tax filers.

4 – For purchase of any other asset

If an individual avail a personal loan for purchasing an asset such as jewellery, shares, non-residential property, etc., then the interest expenses on loan can be the acquisition cost of the asset. This reduces the capital gains on the asset when its sold, thus reducing the capital gains tax liability on the sale transaction.

The minimum salary for instant approvals of personal loans! 

Having access to quick extra credit is a big boon for everyone. The need for unplanned emergency expenses can arise at any time. In such situations, taking a personal loan is a good option to help meet the urgent financial needs, as opposed to prematurely withdrawing your investments and paying penalties for it.

Availing a loan through loan aggregators can suffice any financial needs even with a minimum income of Rs. 20,000. Buddy Loan disburses personal loans with least interest rate and at high speed.

You may also use personal loans for planning a vacation with family, buying a gift that you loved one has been long wishing for or paying for your dream wedding. Whatever the reason may be, personal loans can prove to be extremely beneficial when the need arises.

Personal loans provide quick access to funds, without the need for collateral. They have quickly become one of the most preferred modes of coming up with quick cash for needs that are difficult to manage with one’s monthly paycheck.

Eligibility to avail a personal loan! 

Being an unsecured loan, the eligibility criteria for banks to provide them are a bit different than secured loans. Though these requirements may vary depending on the borrower and his credit score, some general requirements include:

  • Age Limit: 23 to 58 years for salaried people, 65 for self-employed
  • Employed: Employed for a minimum of 2 years / In business for 2 years minimum
  • Minimum Salary: Varies from case-to-case depending on different factors such as a relationship with the bank, credit score etc. 

Read more: 5 Primary Factors Your Lenders Consider For Your Loan Application

The minimum salary to avail a personal loan!

Since personal loans are unsecured, meaning they do not require any collateral, one of the biggest ways for the lender to evaluate your eligibility is your take-home pay. However, to remain informed, Buddy Loan offers personal loan if your minimum income sums up to Rs.20,000 starting at an interest rate at 11.99% p.a.; there are certain factors that would be considered by the lender/bank to decide the minimum salary they would consider to disperse the personal loan.

These factors include:

  • Location

You place of residence plays an important role in determining what your minimum salary would be to obtain a personal loan. For instance, the minimum salary requirement for individuals staying in metro cities like Mumbai, Delhi or Chennai would be higher, in comparison to borrowers from smaller towns and cities due to the difference in living costs.

  • Housing Situation

Your housing situation, primarily whether you own a house or live in a rented place, is also a crucial factor for deciding the minimum salary requirement. Individuals residing in rented accommodation have lower disposable income, which reduces their repayment capacity as well.  

  • Credit History

The borrowers’ credit history is another huge determining factor for loan eligibility. People with stellar credit history may get the loan at a lower minimum salary, whereas the minimum salary requirement would be higher for someone with a poor credit history.

Depending on the above factors, the lender/bank determines the minimum salary that they would require a borrower to have to make them eligible for a personal loan.

Since we have got the fact and figures right on the count, let us further get our documents right.  

Read more: 5 Primary Factors Your Lenders Consider For Your Loan Application

List of documents to help you avail your personal loan faster! 

When you are in sudden need of a large sum of money, one of the best ways to arrange it is to get a personal loan from a bank or NBFC. To obtain this loan, one of the most important requirements is to provide some necessary documents.

One of the biggest hassles is to maintain the recent set of documents that meet the loan application requirement. However, Buddy Loan, one of the best loan aggregators require extremely minimal documentation for availing a personal loan, etc. 

These documents are required by the lender to understand the financial capability of the borrower and to know whether he/she is capable of paying back the loan amount. Besides this, it also helps the lender to understand and verify personal details of the borrower such as their name, age, income, employment status, employer details and address. Based on this information, the lender makes the decision of whether or not to disperse the loan amount to the application.

Documents Required to Get Personal Loan

Banks / NBFCs require a particular set of documents for a loan applicant to verify their details and assess their financial capability. These documents may differ depending on whether the applicant is a salaried individual or self-employed.

Following documents are required from salaried individuals’ application for a personal loan:

  • Proof of Identity: Passport / Driving License / PAN Card / Voter ID Card
  • Proof of Residence: Passport / Utility Bills / Ration Card
  • Income Proof: Form 16 and Salary slips for last 3 months
  • Proof of Age: Passport / PAN Card / Driving License / Voter ID Card
  • Job Continuity Proof: Current Job Appointment Letter or Current Employment Certificate and Experience Certificate
  • Bank Statement: Statement of bank account for the last 6 months
  • Sanction Letter and Payment Track Record, in case of existing loans
  • Passport size colour photo
  • Duly Filled Personal Loan Application

If the applicant for the personal loan is either salaried or non-professional or self-employed professional, the bank would require the following documents.

  • Proof of Identity: Passport / Driving License / PAN Card / Voter ID Card
  • Proof of Residence: Passport / Utility Bills / Ration Card
  • Proof of Age: Passport / PAN Card / Driving License / Voter ID Card
  • Proof of Office Address: Utility Bills / Maintenance Bills / Property Documents
  • Proof of Office Ownership: Utility Bills / Maintenance Bills / Property Documents
  • Income Proof: Income Tax Returns for the last 2 years including computation.
  • Proof of Business Existence: Shop Establishment / Salary Statement for last 3 years
  • Passport size colour photo
  • Duly Filled Personal Loan Application

Only after submitting the above-mentioned documents, the bank / NBFC can process your loan application and disperse the loan amount once the documents are verified and the loan amount is approved. Your personal loan application should benefit you in terms of terms, money not only emergency reasons. Loan aggregators such as the Buddy Loan can keep track of the right profile and right fit of lenders suiting your profile.