Understanding Loans, Types of Loans For Individuals & Businesses and Tax Benefits around Them

WHAT IS LOAN?

One day you think to have a house and for that you don’t have enough money to purchase it, so you go to the bank and ask them for provide you with enough money to purchase a house. The money you took from a bank is called as loan. Here the bank will be known as lender who provides the loan, the bank provide loan on certain guarantee so that they have something on which behalf you will repay the loan which will also have some benefits, interest rate. The whole process is called as loan.

Now if we talk about the component of loan then there’s three components such as principal amount that is the amount provided as a loan, then there’s an interest rate and lastly the period for which the loan is taken.

TYPES OF LOAN

FOR INDIVIDUAL

The loan which can be availed by the individual is called as personal loan. There are following types of personal loans:

1. Wedding Loan

Indian weddings are really expensive and we all are aware about it. It can take all of your savings, so rather than spending all of your savings you can just take a loan which can ease your wedding expenses.

2. Home renovation Loan

This loan can help you getting a new look of your house and also handles the cost of maintenance of work, and also for refurnishing or redecoration of your house and many more.

3. Medical Loan

If you don’t have any insurance and there’s an urgent need of medical expenses then you can apply under this loan, this is the easiest to apply and you will have low interest rate in this type of loan.

4. Higher Education Loan

If you want to take higher education and you don’t have sufficient money to get the education then you can take high education loan which will help you getting education in abroad and also finance other things such as travel, living expenses and many more.

5. Small Personal Loan

If you are in urgent need of loan and you are not able to arrange it you can opt for small personal loan. 

TAX BENEFITS ON PERSONAL LOAN

Generally personal loan don’t provide any tax benefits except in the following case:

• If the payment made towards interest of personal loan and it is recognizable for the use of purchasing a house or for renovation house then it is eligible or deduction under sub-section (b) of section 24 of the Income Tax Act, 1961.

FOR BUSINESS

Long-term Loans

TAX BENEFITS ON BUSINESS LOAN

• Business loan interest is eligible for exemption.
• The principal amount of loan do not provide any tax benefit.
• The interest is usually deducted from gross income.
• To avail the deduction of interest you have to fulfil some criteria.
• Repayment amount which is EMI is not eligible for deduction.

Authored by Adv Shivam Kumar