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Deduction in Respect of Various Loans


Deduction in Respect of Various Loans. Well, taking a loan has its own advantages. Your instant liquidity needs are met. Also, these days, loans are available at quite a cheap rate of interest. But, there are certain additional advantages too!Let us have a look on them:

Deduction in Respect of Various Loans

Housing Loan:

This is considered to be given at the cheapest rate, generally, the base rate & it is completely beneficial from your tax planning point of view. It has certain implications as specified in The Income Tax Act, 1961. The Interest paid on Housing Loans is allowed as a deduction under the Head – “Income from House Property” upto Rs. 2 Lakhs in the case of Self Occupied Property & there are no limits in the case of Interest paid on Let out Property. Also, if the loan is taken for Renovation or Repairs & Maintenance of the House Property, the deduction on interest under Section 24 will be restricted to Rs. 30,000/-.
Not just this, Amount of Principal repaid towards the loan is also allowed as a Deduction under Section 80C. The Aggregate of all deductions under Section 80C can be upto Rs. 1.5 Lakhs.

Must Read – Belated Return & Revised Return – Complete Details

Section 80E

When the value of the house is Rs. 40 Lakhs or less and the amount of loan taken does not exceed Rs. 25 Lakhs, a maximum deduction of Rs. 1 Lakh is allowed under this section and this deduction can be claimed in financial years 2013-14 and 2014-15 which can be spread over these two years or in any one year. This section lapses in the current financial year 2015-16. So, Deduction won’t be available in case of house brought in the Current Year or the previous year. For this purpose, the loan should have been sanctioned between 1st April, 2013 & 31st March, 2014. So, if you haven’t filled your return for the A.Y. 2015-2016, you still have the option to take the benefit of such a loan.

Must Read – Chapter VIA – All Deductions at a Glance

Education Loan:

The interest paid on Education Loan is allowed as a deduction under Section 80E without any limits. Thus, it is beneficial to pursue studies taking Education Loan in every way. However, in this case, deduction is allowed only for the repayment of interest & there is no deduction for the repayment of principal amount of the loan. Also, not to forget, this deduction is available for loan taken to pursue studies in or outside India. That is, Section 80E is also available for Education abroad also. There is a time limit of 8 years for claiming the deduction which starts with the year the assessee starts paying the interest. That is, 8 years or complete repayment of the loan, whichever is earlier.

Must Read – Paying Tax is better than Saving Tax!

Other Loans:

Well, in the case of other loans, except for housing loan & education loan, if the purpose for which the loan taken by you is related to your business or profession, you can claim the interest paid on such loans as your expense. You just have to show the interest paid in your books of accounts as debited to the Profit & Loss Account & you are eligible to take benefit of the same. This will have the effect of being an expense against your income, thus lowering your income & reducing your tax liability.

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About CA Ridhi Dhoot

The writer is a Chartered Accountant & a Licentiate Company Secretary. You can reach out to her at [email protected]

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