Personal loans are easy financial aids, but misconceptions around their taxation often cause unnecessary worry. Let’s bust some common myths and reveal the reality behind personal loan taxes!
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Here are some myths and reality about tax on personal loans:
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Myth: Personal Loans Are Always Taxable
Reality: Personal loans from legitimate sources like banks or NBFCs are not taxable income, so this statement is false.
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Myth: You Can Claim Personal Loan as a Tax Deduction Anytime
Reality: Deductions on personal loans are only allowed for specific purposes, not for personal spending like travel or weddings.
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Myth: Gifted Loans from Friends or Family Are Not Taxed
Reality: Receiving money from friends or family without proper documentation may classify it as a gift, attracting taxes if over ₹50,000.
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Myth: No Need to Show Personal Loans in ITR
Reality: You don't pay tax on personal loans, but disclose significant amounts to avoid issues, especially if tied to large purchases.
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Myth: Interest Paid on Personal Loans is Always Tax-Deductible
Reality: Interest on personal loans isn't tax-deductible unless used for approved purposes like business investment, home purchase, or renovation.