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  • Category: Tax Planning

    For the loan given, can I get tax exemption

    Are loans exempted from income tax? Can you get an income tax exemption on a loan you have lent out to someone? Know about loans and tax exemptions here.

    I had given a personal loan of Rs.10.0 lakhs to my brother for his business.
    Can I get the tax exemption on this amount?
    Can I reduce the amount from my total income (say 22 lakhs) and show the balance (12 lakhs) only as income for the purpose of IT computing and arriving at the tax?
    Please provide the answer.
  • #93306
    Personal loan are not recognized for any kind of tax exemption. So you will not be eligible to get exemption for the same while filing your Income Tax Return.

    Deduction for loans is available only in following cases:
    1. Home loan
    Deduction under head house property. For principal amount under section 80C and for interest as deduction from rental income, if there is any rental income or as loss if no rental income.
    Deduction for interest will be maximum Rs. 1,50,000 for interest and Rs. 1,00,000 under 80C for principal amount per annum.

    2. Education loan
    If loan is taken from any higher education from any scheduled bank then deduction is available under section 80E for the full interest paid on that loan. However there is no deduction for the principal amount.

    The details have not been discussed here as the loan given by you to your brother pertains to personal loan and it does not qualify for any kind of deduction under the Income Tax Act anywhere.

    As a matter of tax planning you can charge interest from your brother for the loan given which he can claim as financial expense in his business and you can show the interest income as your income from other sources. But it will be a taxable income which you need to plan before you do so.
    I advised as such because if you fall in tax bracket of 10% or 20%, then you will pay tax @10% or 20% but your brother will save 30.9% tax by claiming interest as expense from his business. There will be a saving of 10% or @20% savings in tax as per the tax bracket you fall in.

    This will be purely based on your mutual understanding between you and your brother that you want to charge interest or not. But it is totally legal and genuine to do so. If you charge interest then make sure it is not excessive as compared to the market rate of interest.

    In the end it is you who has to decide which option is better for you. Best of luck.

  • #93311
    Dear friend,
    I suggest you that any kind of personal loan is not recommended for income tax exemption.
    Personal loan is always considered to be used for personal purposes and hence not recommended for any kind of tax exemption whatsoever be the amount of personal loan.
    Income tax is exempted on home loan, educational loan, land loan with construction details provided therein.

    "Do not get disappointed with change in circumstances. Ride on the changed circumstances and get the solution"

  • #93332
    The government of India imposes an income tax on taxable income of individuals.

    You can get exemption from following under income tax.

    1.Provident Fund (PF)
    2.Life Insurance Premiums.
    3.ELSS Equity Linked Saving Schemes.
    4.ULIP (Unit Linked Insurance Plan).
    5.Bank Fixed deposits or Term deposits of more than 5 years.
    6.Principal part of EMI on Housing Loan.
    7.Tuition Fees for 2 children.
    8.Amount saved in National Saving Certificate (NSC).
    9.Mediclaim Premium on the Health.
    11.Professional Tax

  • #93452
    As simple as that loan given is your one kind of asset which will recover in future. As you are investing your income it is not allowable as exemption .

  • #94908

    Only Housing Loan is consider for tax exemption.
    Other Loan is not Consider.

  • #95656
    Income tax deduction is given to loan availed from Banks for basic requirements of a citizen like home and education. No deduction on Income is given for personal loan given which is purely private in nature.

  • #144220
    No, there is no any deduction available under the income tax act,1961 so you will not get any exemption while filling your return of income.

    However you can take interest from your brother but in this case you will have to show it in the head of income. As a result your total income will be increased. Accordingly you will have to pay more tax.
    Here one thing is very important and clear. That is you must have to received interest from your brother at a rate which prevail in the market.

    There are two types of loan by which you can claim exemption under the income tax act,1961.

    1. Home loan: If you take any home loan from bank or any financial institution, in that case you can claim deduction under section 80C (as a principal repayment of loan). And for interest portion you can claim deduction under the head income from house property.

    2. Education loan: If you take any education loan for your child or children, in that case you can claim deduction under section 80E (interest paid on the loan for a particular financial year).

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