A personal loan is a form of unsecured loan offered by financial institutions. You can use the borrowed fund to meet various expenses. It is becoming one of the most sought-after forms of loans, and almost all lending institutions are offering personal loans in their product line. A few of the most common reasons for opting for a personal loan include debt consolidation, home renovations, higher education, and a destination wedding.

Like all loan products, personal loans need to be repaid over a while through monthly installments along with interest. Personal loan interest rates may be either fixed or variable and are available with a repayment period of 12 months to a maximum tenor of 60 months.
You may need a personal loan and, at the same time, be confused about the loan amount that you should opt for. In this situation, you are advised to refer to the personal loan EMI calculator, available on all official websites of various lending institutions. That will give you a fair idea of the monthly liability you will have to, eventually, bear up.

Are Personal Loans Tax Deductible?
As funds available through a personal loan are not construed to an income, the same is not taxable under normal circumstances. Interest that you pay on a personal loan is not deductible under Income Tax.

However, like all rules, there are some exceptions here too. In the following section, let us take a look at a few exceptions where personal loans may become taxable.
Cases Where Tax Benefits May Be Claimed Against Personal Loans:
As per Income Tax Act, 1961, there are some provisions under which interest paid on Personal Loans may be eligible for a tax deduction. The deduction depends on how you utilize the borrowed fund. Let us have a look at some of such instances where interests paid on personal loans are deductible under the Income Tax Act, 1961:
1. For Expansion Of Business: You may borrow from an institution in the form of a Personal Loan and subsequently utilize that fund for expansion of business. The business expansion shall entail incremental revenue income. In this situation, the interest paid on Personal Loans may be claimed as a tax deduction.
2. Purchase Of Other Assets: If you happen to buy jewellery, shares or gold on the funds made available through Personal Loans, the interest that you pay may be deducted under Income Tax Act, 1961. That is because the interest paid is written off against the acquisition of an asset.
3. On House Improvement & Renovation: Under the provisions of Section 24(B) of the Indian Income Tax Act, 1961 interest paid on Personal Loans is eligible for a tax deduction. That is subject to the condition that the borrowed fund has been fully utilized for the renovation of an existing house property. In a financial year, a maximum of Rs. 30,000/- of interest paid on Personal Loans may be deducted from your taxable income.
In case the borrowed fund is used for the improvement of a self-owned house, interest paid for upto Rs. 2 lacs p.a. is exempted from tax. In case the house is a rented property, the entire amount of interest that is paid on Personal Loans is eligible for a tax deduction.
4. For Higher Education: In case Personal Loan has been availed for higher education, the interest paid thereof is eligible for a tax deduction for a maximum term of 8 years or until loan repayment, whichever is earlier.
Key Takeaways
● Interests paid on Personal Loans are generally eligible for tax benefits.
● However, under particular conditions, i.e. if the borrowed fund is utilized for expansion of business, procurement of other assets, home improvement and renovation or higher education, the interest paid on Personal Loans are eligible for a tax deduction.
Conclusion
If you are a prospective customer for a Personal Loan, it is advisable to weigh the pros and cons of availing of the loan carefully. It is going to be a monthly financial liability for you. Hence, you need to cover all your bases before you take on the loan.