The recent pandemic has caused significant financial predicament to scores of individuals globally. In India, the impact has been even graver. Even though the Central and state governments are lifting lockdown in a calibrated fashion, allowing economic activities to resume, several individuals have still not regained a firm financial footing. Thus, on 29th July, the Central Board of Direct Taxes deferred the deadline for filing income taxes from 31st July to 30th September 2020.
With this, individuals are allowed not only a breath of respite but also an opportunity to bring their tax liabilities in order and optimise tax benefits. For instance, you should account for your total income tax payable, and learn about tax benefits on gold loans, home loans, and such exemptions to reduce your liabilities for the year. This way, you can ensure your finances are in order.
What are the Tax Benefits on a Gold Loan?
You can enjoy tax benefits on loans, like a home loan, under the provisions put forth under the Income Tax Act, 1961. However, it is not the case with a gold loan. With this financing option, the tax benefits you can enjoy are based on how you utilise the loan amount.
Some of the ways you can avail tax benefits on your loan against gold are:
- Home improvement
Your home requires constant upkeep. Whether you need to address significant repairing expenses or have to make renovations based on changing requirements, the funds required might be substantial. To meet these expenses, you can avail a loan against your gold assets and consequently reap tax benefits on gold loans.
Under Section 80C of the Income Tax Act, 1961, you can avail tax deduction against a loan for home improvement. This deduction applies to the principal amount and is capped at Rs. 1.5 Lakh in a year.
- Construction or purchase of a residential property
In some cases, home loans might not adequately satisfy the variegated fund requirements of purchasing or constructing a residential property. To meet such financial demands sufficiently, you can effectively utilise a gold loan. Moreover, you can also avail tax deduction against the interest component of such a gold loan in that specific year.
Under Section 24 of the Income Tax Act, 1961, you can claim a tax deduction of up to Rs. 2 Lakh in a financial year, if the property you buy or construct is self-occupied. In case the residential property is rented, then you can claim the entire interest paid in that specific financial year as exemption from your taxable income.
- Business expense
You can also enjoy tax benefits on loans against gold if you use the fund to mitigate expenses incurred for your business.
If you use a loan for business purposes, you can treat the interest amount as a business expense. This way, you can bring down the total taxable income from your business, and, in turn, your tax liability.
- Purchase of assets
You can also use a gold loan to purchase assets other than property to avail tax benefits. However, the said benefit takes effect in the financial year when you sell such assets. For instance, if you purchase stocks in 2020 using a gold loan and sell them in 2024, the tax benefit will take effect in the Assessment Year 2024 – 25.
To avail this benefit, you need to include the interest paid on such a loan as cost of acquisition. On doing so, you can lower your capital gains. In turn, this allows you to reduce the quantum of capital gains tax you need to incur.
You might also know the loan you avail against your gold articles is not taxable, since it does not form a part of your income.
However, apart from tax benefits on loans against gold items, you can also enjoy a host of other advantages with this financing option.
Let’s take a look!
Features and Benefits of a Gold Loan
When it comes to convenient access to external funding, few financing options compare to a gold loan. Moreover, while gold items are a staple in most Indian households, they have minimum practical utility. Therefore, you can utilise the equity they carry to avail a loan with ease.
Here are the benefits of availing a gold loan in India:
- Instant accessibility
Financial emergencies can crop up anytime. With a gold loan, you can get instant access to funds to address these emergencies promptly. Moreover, leading digital lender Rupeek Fintech Pvt. Ltd. provides an industry-first doorstep loan services. You can, thus, avail the loan from the comfort of your home.
After you apply for a gold loan, a loan manager is sent to your home. This person will evaluate the weight and purity of the gold items you possess. Subsequently, they will send a request for approval based on their appraisal, after which you can receive the loan amount in your account if everything is in order. All of this takes approximately 30 minutes.
Moreover, the representative waits till you receive the loan amount in your account, and then leaves with the pledged gold items.
- Considerable LTV
Loan to value ratio or LTV is the percentage of your pledged asset’s market value that you can receive as a loan. With a gold loan, you can avail a considerable sum as principal because owing to a high LTV. Moreover, with a loan from the aforementioned digital lender, you can avail the highest LTV against your pledged gold items’ value.
- Iron-clad security measures
Gold items hold immense sentimental value for Indians. Therefore, you may have reservations about their safety when pledging them to acquire a gold loan. However, reputed lending institutions follow stringent security measures to ensure their safety as well as the preservation of their condition.
- Nominal interest rates
A significant advantage of this financing option is it comes with low interest rates. This feature, along with tax benefits on gold loans, helps you to reduce the burden on your finances considerably.
- Various repayment schemes
You can ease your liability from the loan with different repayment options offered by lenders like Rupeek. For instance, you can reduce your monthly instalments by opting for interest-only EMIs and pay the principal at the end of the loan tenure. You can also pay the entire amount, both principal and interest at the end of the term with a single bullet payment.
These benefits, along with usage-based tax exemptions of a gold loan, allow you to optimise your financial position efficiently.