There are no limits to the expenses once the wedding planning starts. To cover those expenses, either people can borrow money from their near and dear ones, or an even better alternative is to take out a personal loan. A personal loan offers many benefits, such as a quick and hassle-free application and approval process, no collateral, immediate access to funds, minimal documentation, and no restrictions on end-use.
However, there is one more benefit a person may receive from a personal loan: tax savings. Moreover, tax savings become more beneficial since the personal loan interest rate is comparatively higher. This article will discuss how you can use your wedding loan to reduce tax.
How can you use your wedding loan for tax savings?
Per the Income Tax Act, a person can not avail any tax exemption on a personal loan used for a wedding expense. However, a person can take advantage of tax benefits for personal loans, provided it is used for certain specific end-uses. Following are the specified situations :
- Loans for residential property
Building a dream home is an essential consideration for every couple getting married. Section 24 of the Income-Tax Act is related to the house property deductions. This section allows individuals to benefit from the deduction for interest paid on loans to purchase, construct, or renovate residential properties. However, the deduction limit is INR 200,000 if the individual lives in the same house. Nonetheless, there is no maximum limit on the deduction amount if the residential property is given on rent or is let-out. Additionally, the borrowers need to provide certified documents to verify that the end-use is for residential property only. Thus, if the couple takes a personal loan for this purpose, they can take advantage of this section to save on taxation.
- Loans for gold or jewellery
Jewellery is an essential part of a wedding trousseau. Jewellery purchases, such as rings and bridal sets, are evident at every wedding. Additionally, gold is regarded as a safe investment. Not only at weddings, but people have been converting their cash into gold for a long time. This is because gold’s value increases over time, and during a financial crisis, people can sell the asset and earn a profit. Those who purchase the same through a personal loan can also save tax on the same. However, there are no tax exemptions at the time of purchase. In the future, when the asset is sold, the loan interest will be added to the purchase price, reducing the overall taxable profits.
- Loans for business purposes
In today’s world, the working culture has transformed. The number of women entrepreneurs has increased. Couples are starting their joint ventures after getting married. Now, every business venture requires funding. There is no tax exemption on wedding expenses. However, if couples use the personal loan for business expansion, they can save tax. Hence, they can take a personal loan and use it to invest in their business. The interest paid on such a loan can be shown as a business expense, which will reduce the taxable profits and eventually the tax liability. Married couples can always take advantage of an online personal loan EMI calculator to better plan the repayment structure.
After reading the above article, you must have understood that there are no tax exemptions for personal loans unless used for the above purposes. Tax exemptions are not available if the borrower uses the principal amount of such loans for any other purpose than specified. For this reason, if you want to claim a deduction, you must provide proper documentation showing that the personal loan has been used for a specific purpose.