Tax exemption on interest free loan

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wolkarix (Querist)
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03 March 2015 I gave interest free loan to my friend and relative of around 1 lakh this year and last week I got to know that I can claim tax exemption on this. I am salaried person and as of now I submit ITR-1 for return but I dont see any column to claim exemption for this in ITR form.

So can someone please advice me how to claim tax exemption for this and does it come under 1.5L limit of 80C . Also what proof do I need to submit for exemption.

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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03 March 2015 giving loan will not fetch any exemption to u under any sections

wolkarix

wolkarix (Querist)
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04 March 2015 Thanks Tushar for the response, but I read it in some blog. At one blog they said limit is 50K if its interest free and another one there was nothing mentioned for limit.

In case this is not applicable then can you help me in saving my TAX for this year as I have not yet made any investment and I have to pay huge amount of TAX which obviously I dont want to.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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26 July 2025 Thanks for sharing your query! Here’s a clear explanation on **interest-free loans** and tax exemption:

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### 1. **Interest-Free Loan & Tax Exemption**

* **Giving an interest-free loan to your friend or relative is NOT eligible for any tax exemption under the Income Tax Act.**
* There is **no provision under Section 80C or any other section** that allows exemption on interest-free loans given by an individual.
* The **limit of ₹1.5 lakh under Section 80C applies to specified investments or payments like PF, LIC premiums, home loan principal repayment, etc.** — NOT to loans you give to others.

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### 2. **Is Interest Income Taxable?**

* If you had charged interest and received interest income, then the **interest income would be taxable under ‘Income from Other Sources’**.
* Since you gave the loan **interest-free**, no income arises and thus no interest income needs to be reported or declared.

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### 3. **Is There Any Section Covering Interest-Free Loans?**

* The Income Tax Act has **Section 56(2)(vii)** which talks about “**receipt of money without consideration or inadequate consideration**.”
* If your **friend or relative receives an interest-free loan from you**, and if it is a **specified person (like relative)**, then for the **recipient, the loan amount may be treated as income** under certain conditions, but for you as the lender, **there is no tax benefit or exemption**.

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### 4. **How to Save Tax for This Year?**

Since giving loan doesn’t give you any deduction, here are some popular tax-saving options you may still consider before filing ITR:

* **Section 80C**: Invest up to ₹1.5 lakh in PPF, ELSS (mutual funds), Life Insurance, NSC, principal repayment of home loan, etc.
* **Section 80D**: Health insurance premium deduction.
* **Section 24(b)**: If you have a home loan, claim interest deduction (up to ₹2 lakh).
* **NPS (Section 80CCD)**: Additional deduction up to ₹50,000.
* **Tax-saving Fixed Deposits** with 5-year lock-in.

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### 5. **ITR Form**

* You cannot claim exemption or deduction for an interest-free loan given.
* Continue filing **ITR-1** or appropriate ITR form based on your income sources.
* Deductions under 80C etc. have specific columns; loan given is NOT a deduction.

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### **Summary**

| Scenario | Tax Treatment |
| ---------------------------------- | ----------------------------------------- |
| Interest-free loan given by you | No exemption/deduction available |
| Interest income from loan (if any) | Taxable under ‘Income from Other Sources’ |
| Recipient of loan (if relative) | May have income under Section 56 |

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