Availed of a Gold Loan? Here are the Tax Benefits You Can Avail Of

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Gold Loan

Emergencies and unanticipated expenses may often put a dent in anyone’s pocket and require them to cut back on expenses that are necessary for the house to function. While some prefer to borrow money from family and friends to get through the crisis, some choose to borrow from banks and non-banking financial companies (NBFCs). Personal and gold loans are two of the most common loan products given by banks and NBFCs that consumers use to cover both long-term and short-term emergency costs. Aside from crises, people take out gold loans for a variety of purposes, including weddings and house improvements.

If given an option between a gold loan and other forms of credit, most of us choose the best gold loan bank to avail gold loan due to the fact that gold loans qualify for specific tax breaks. Many borrowers are unaware that taking out a gold loan to cover certain needs can assist you reduce your tax liability. Let’s understand how you can avail tax benefits on a gold loan if you get a loan from the best gold loan bank:

Work on Home Improvements/Repairs: Whether it’s repairing a leaking tap or upgrading the wiring in the house to accommodate a new television set, some expenses are unavoidable in a home. And if the repair work is extensive, such as replacing windows or applying a new coat of paint, the cost will be significantly greater. Borrowers can get tax benefits on gold loan amounts used to finance home improvements. The tax benefits for house improvements are offered under Section 80C of the Income Tax Act of 1961, with an annual ceiling of Rs. 1.5 lakh. This deduction is only allowed for loan principal repayment and applies to all forms of house repair, replacement, and improvement expenses. 

Purchase/Construction Of Residential Property: Taking out a gold loan from the best gold loan bank to purchase or build a home comes with tax advantages. Borrowers of gold loans can claim a deduction of up to Rs 2 lakh per year under Section 24 of the Income Tax Act if the loan amount is used for the purchase or building of residential property. It should be emphasised that the deduction is only available if the residential property is self-occupied, and the tax benefit only applies to the gold loan rate or paid. The annual deduction amount is limited to Rs. 2 Lakh and is applied to interest paid towards such loan repayment. 

Business Expenses: Those who manage a business are aware that a mismatch between income and expenses is typical, and it can be rectified in a variety of ways. In the event of increased expenses, a gold loan availed from the best gold loan bank may be the solution. This is because taking out a gold loan for company expenses has tax advantages. According to the Income Tax Act, the loan amount is deductible as a business expense. Tax advantages on gold loans if gotten from best gold loan bank can help firms reduce their overall tax liabilities. Borrowers might profit from gold loan tax benefits if they use the loan money for company expenses. When a loan is utilised to pay for company expenses, the interest paid on the loan amount is deductible under the Income Tax Act.

Purchase of an Asset: Aside from fulfilling unexpected monetary needs, gold loans can also be used to make a higher return on jewellery than simply storing it in lockers. Confused? A gold loan can be used to invest in assets other than real estate, and such loans are tax deductible. Tax exemption on gold loans is also available if the funds are used to purchase an asset other than real estate. A borrower can take advantage of this benefit only during the fiscal year in which the asset is sold. The gold loan rate interest paid on such loan amount used for asset purchase is considered the cost of acquisition, resulting in tax benefits.

For example, if you want to take out a gold loan from the best gold loan bank to invest in the stock market because you believe that the returns will be higher, you can do so. Borrowers should keep in mind, however, that this tax break only applies in the fiscal year in which the asset is sold. If you used a gold loan to buy shares in 2023 and sold them in 2025, you can claim tax savings when submitting returns for the fiscal year 2025-26. The interest paid on the loan must be shown as the cost of obtaining the asset when filing taxes. This will help you in reducing capital gains taxes.

Conclusion

Aside from tax advantages, gold loans have various other advantages over unsecured debts such as personal loans and credit cards. To begin with, due to the collateral factor needed for the loan application, obtaining a gold loan is simple and quick, and prospective borrowers are not needed to provide additional documents such as income records. Unlike personal loans, where borrowers’ creditworthiness must be assessed, gold loans can be obtained quickly by people who own gold in the form of jewellery and have KYC-compliant bank accounts. The lower gold loan rate is the second benefit. In most situations, gold loan interest rates start as low as 7.35%, whereas personal interest rates start as high as 10.00%. To receive the tax benefits, you must obtain a gold loan from the best gold loan bank rather than a local moneylender or pawn shop. Taking out a loan from a reputable lender not only simplifies the entire process from application to approval and, finally, repayment but also assures that your valuables are completely protected.