Tax Benefits with Personal Loans

Yes, you read it right. You can enjoy certain tax benefits with personal loans as well. Since it is a tax saving season, undoubtedly, it seems a big news for people who are looking for ways to save taxes! However, the tax benefit would depend on the final use of the personal loan.

Before we discuss the tax benefits available, let’s discuss what a personal loan entails. A personal loan is considered to be one of the easiest ways to get the money, which can be used for any purpose. Both banks and non-banking financial institutions (NBFCs) offer personal loans with minimum documentation and easy repayment schedule. It can be availed online as well.

Tax Benefits of Personal Loans

As per our income tax laws, there is no specific tax deduction for a personal loan. However, in order to get tax benefits on a personal loan, the purpose for which the loan has been used does get considered. It means, if a personal loan has been taken and used for the ultimate purpose for which the tax deduction is available, the borrower becomes eligible to get a tax benefit, else it would not be given.

Usually, tax benefits on personal loans would be applicable if the online personal loan amount has been used for the below purposes:

  1. Loan amount used for purchasing/constructing a residential house – If you take a personal loan for purchasing or constructing a house, you would be eligible for a tax deduction under section 24(b) of the Income Tax Act against the interest portion of your loan repayment. While for a self-occupied house, interest amount up to Rs 2 lakh can be claimed as tax-deduction, in case of a rented property, the entire interest paid on a home loan is eligible for the tax benefit. Further, if the loan amount is used towards paying the down payment, it would also get tax benefits. Similarly, the interest paid on the home improvement loan gets a tax deduction for up to Rs. 30,000.

Remember, the tax benefit is available only on the interest paid and not on the repayment of the principal amount. Having said that, it’s worth mentioning that a borrower has to give adequate proof to tax authorities to validate that the online personal loan money has been used to buy and renovate/repair the house.

  1. Loan amount invested in business – If the online personal loan amount has been used in the business, the interest paid on the loan would be considered as an expense, and thus, it would be deducted from the gross revenue. This, in turn, will help in reducing the net taxable profit of the business, thereby lowering the tax liability.
  1. Loan amount used for buying the asset – If the borrower has used the personal loan to buy assets like jewellery, shares, non-residential house etc., the interest paid on loan would be added to the cost of acquisition of the asset. Though tax deduction would not be available immediately in the year in which the interest has been paid, it would be added to the cost of acquisition and would be available in the year the asset gets sold.

Important Things to Remember Regarding Tax Benefits on Personal Loans:

* When the lender disburses the personal loan amount, no tax would be levied in the hands of the borrower as the loan amount is not an income.

* To claim a tax deduction, it is essential to submit evidence to prove that the loan amount has been used for any of the above-listed purposes.

* Personal loans must have been availed from a valid source, like a bank or an NBFC, as loans from an unknown source may be considered as income and thus, will not be eligible for tax benefits.

* As tax benefit is available only on the interest portion of your home loan and not on the principal amount, a borrower needs to submit the interest certificate to get the tax incentive.

To conclude, with personal loans, you get the freedom to use the loan amount as per your wish without informing the lender. So, if you need money for any of the above mentioned purposes, just apply for a personal loan and don’t forget to avail tax benefits as well.

SREI Infrastructure Finance 9.50% Non-Convertible Debentures (NCDs) – February 2018 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at

Low interest rates on bank FDs and post office small saving schemes has resulted in investors searching for higher yield fixed income options, including short term debt funds. One such investment option is available right now in the form of non-convertible debentures (NCDs) from SREI Infrastructure Finance Limited.

The issue opened on February 9, 2018 and is carrying a maximum of 9.50% per annum coupon rate. It will remain open for two more weeks to close on March 7, 2018. These NCDs are offering monthly, annually and cumulative interest payment options.

As we analyse it further, let us take a quick look at the salient features of this issue.

Size & Objective of the Issue – Base size of this issue is Rs. 200 crore, with a green-shoe option to retain an additional Rs. 1,800 crore, thus making it a Rs. 2,000 crore issue. The company plans to use at least 75% of the issue proceeds for its lending activities and to repay its existing loans and up to 25% of the proceeds for general corporate purposes.

Coupon Rate & Tenor of the Issue – The issue will carry a coupon rate of 9.50% p.a. payable on an annual or cumulative basis for a period of 10 years, 9% p.a. for a period of 5 years, 8.75% for 3 years and 8.50% for 400 days. For investors seeking regular income, monthly interest payment option is also available for a period of 3, 5 and 10 years. Though coupon rates will be lower with the monthly interest payment options, effective rates will be close to the coupon rates of annual interest payment options.


0.25% Additional Coupon for SREI Infra Shareholders, NCD Holders, Senior Citizens & Employees – Existing shareholders and NCD holders of SREI Infra, senior citizens aged more than 60 years of age and the employees of SREI Infra will be offered an additional coupon of 0.25% per annum. Record date for the payment of interest will be considered as the relevant date for these investors to be eligible for this additional rate of interest.

Minimum Investment – Investors are required to make a minimum investment of Rs. 10,000 i.e. ten NCDs of face value Rs. 1,000 each.

Categories of Investors & Allocation Ratio – The investors have been classified in the following four categories and each category will have the below mentioned percentage fixed in the allotment:

Category I – Institutional Investors – 20% of the issue i.e. Rs. 400 crore

Category II – Non-Institutional Investors – 10% of the issue i.e. Rs. 200 crore

Category III – Individual & HUF Investors – 60% of the issue i.e. Rs. 1,200 crore

Category IV – Trusts & Society Investors – 10% of the issue i.e. Rs. 200 crore

Allotment will be made on a first-come first-served basis, as well as on a date priority basis i.e. on the date of oversubscription, the allotment will be made on a proportionate basis to all the applicants of that day on which it gets oversubscribed.

NRIs Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.

Credit Rating & Nature of NCDs – Rating agency Brickwork Ratings (BWR) has rated this issue as ‘AA+’. Debt instruments with such a rating are considered to have high degree of safety regarding timely payment of interest and principal. NCDs issued for 400 days, 3 years and 5 years are ‘Secured’ in nature and in case of any default on its payment of interest or principal, the bondholders will have the right on certain secured assets of SREI Infra. However, NCDs issued for 10 years are ‘Unsecured’ in nature.

Listing, Premature Withdrawal & Put/Call Option – These NCDs will be listed on both the stock exchanges i.e. Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). The listing will take place within 12 working days after the issue gets closed. Though there is no option of a premature redemption, the investors can sell these bonds on the stock exchanges.

Demat Not Mandatory – Demat account is not mandatory to invest in these NCDs as the investors will have the option to apply for these NCDs in physical or certificate form as well.

TDS – Interest income earned is taxable with these NCDs and the investors are required to pay tax on the interest income as per their respective tax slabs. TDS @ 10% will be deducted if these NCDs are held in physical/certificate form and annual interest income is more than Rs. 5,000. NCDs held in demat mode will not attract any TDS.

Should you invest in SREI Infrastructure Finance NCDs?

Post the implementation of GST in July 2017, the government has reduced its rates from 28% to 18%, from 18% to 12% and from 12% to 5% on many of the items. Probably that is one of the primary reasons why GST tax collection has been below the government’s own estimates. Such shortfall in tax collection and lower than expected economic growth has put a lot of pressure on the government’s finances and thus resulted in a spike in bond yields. The benchmark 10-year G-Sec yield has jumped to 7.91% from a low of 6.1-6.2% post demonetisation.

In such a scenario, I would have liked SREI Infra to offer somewhat higher rate of interest in this issue. SREI Infra’s subsidiary, SREI Equipment Finance in its July issue offered relatively attractive rate of interest. Since then, bond yields have risen by at least 75 basis points. So, SREI Infra offering relatively lower rate of interest in a rising bond yield scenario has left me somewhat disappointed as an investor.

But, even the fixed deposit rates have been ruling at lower than satisfactory levels. In such a scenario, one should either wait for some other company to come out with its NCDs issue carrying relatively attractive rate of interest, or deploy money in short term deposits or short-term debt mutual funds. However, investors who do not want to wait for some other issue to invest their surplus money can consider investing in this issue.

Application Form – SREI Infra NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in SREI Infra NCDs, you can reach us at +91-9811797407

How to Revive Your Lapsed Life Insurance Policy?

Think of the things that went well for you this year. A rocking birthday celebration, amazing Diwali or Christmas filled with lights, New Year celebration full of fun or the last picnic with friends! The holidays you took with your family & friends were memorable too! So many things happened, and you cherished these memorable moments and events time and again. Amidst all the happy things, did you pay your term insurance premium in time?

If you wish to discontinue your term insurance policy for any reason, you can easily do so, but you are keeping your family’s future at stake while doing so. To maintain coverage, you must continue to pay the premium when due. If you do not do so, the policy will lapse, and your family won’t get the required coverage. Yes, there is no other additional cost, but it is a loss for your loved ones.

What is Term Insurance Lapse?

When you purchase a term insurance policy, you have to pay a certain amount of premium throughout the policy tenure to keep it active. In the insurance terminology, a lapsed policy is that insurance policy for which all the benefits are ceased. For some reasons, if you do not pay the due premium on time, your term plan will lapse. Such situation also arises when the policyholder fails to pay the premium even during the grace period.

How Can You Revive a Lapsed Term Life Insurance Policy?

If you have missed the premium payment, your policy will enter into a grace period zone. All term insurers give some grace period to their policyholders to enable them to pay their premiums. For term insurance policies, the grace period can be as follows:


Note, each company has its guidelines, and you should refer to your term insurance document to verify the grace period and other specific rules.

Your term life insurance policy will not lapse if the insurer receives your payment within the grace period. One important point to note is that your lifetime risk is still covered during the grace period. It means, the insurance company is always accountable for paying the sum assured if a valid claim is filed during the grace period.

Let us understand it with the help of an example. Suppose a person fails to pay the premium for a term insurance policy and unfortunately meets with an accident before the grace period ends and loses his life. Now, as the accident has happened within the grace period, the insurance company will have to pay the benefit as and when the family files the claim. However, if the accident occurs after the grace period, the insurer will not pay any benefit to the family.

What Happens After Grace Period?

If you go past the grace period without paying your premium, your term plan will lapse. It means, your beneficiaries will not get any benefit in case of any unfortunate event.

If you decide, you can still apply to revive the policy. If the insurer agrees to reinstate the policy, you will be required to pay the premium due from the end of the grace period. Again, each company has its guidelines for reinstatement.

When a term policy gets lapsed, it can be revived and brought to its full force by payment of the overdue premium (with interest) and a declaration about the current state of health or fresh medical examination. However, a lapsed policy can only be revived if the insurer agrees to do so. Following are the requirements for the reinstatement application:

  • Reinstatement Application Form: All companies will ask you to complete a reinstatement application form which is similar to the original application form you filled out at the time of buying the policy.
  • Health Statement: It is required to see if anything has changed with your health since your first application, therefore, you will have to submit a health statement.
  • New Medical Exam: Most companies won’t require this if you apply for reinstatement within a specified period. But again, it depends on the insurer.

Some Important Points to Note:

All insurance companies advise their customers to pay premiums on time as there is a multitude of premium payment options available. Here are some of the ways through which a policyholder can pay a premium:

  • Cheque/DD
  • Credit/Debit Card
  • Internet Banking
  • Wallets, like Paytm
  • Wire Transfer
  • Phone

A policyholder can issue a standing instruction to his/her bank so that premium gets deducted on a particular date. Further, a policyholder can also visit the insurer’s branch to pay the premium or place a request for a renewal cheque pickup with the insurer.

  • Customers can give the mandate to their banks to allow the premium deduction on a specified date
  • Insurers have tied up with banks so that their policyholders can pay premiums through their bank accounts. In fact, some banks are allowing people to pay their insurance premiums via ATMs

Don’t Let Your Term Insurance Policy Lapse

It is advised to continue paying the premium until the end of the term so that you can offer financial protection in the form of a sum assured to your family members in case of unexpected events. It is the most necessary backup plan for your life and the one thing that comes to your family’s rescue when life events turn sour.

Further, under Section 80C of the Income Tax Act 1961, any amount paid towards your insurance policy provides you tax deduction upto Rs 1,50,000 in a financial year. However, no tax benefit is available on a lapsed insurance policy.

Remember, term insurance is not for you, but for your family. It is your prime responsibility to take care of your loved ones which you would be able to do only if you pay your premiums on time.

Budget 2018 – LTCG Tax @ 10%, Grandfathering Clause & Dividend Distribution Tax (DDT) on Equity Mutual Funds

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at

Budget 2018 has reintroduced the long-term capital gain tax on equity shares and equity mutual funds. There were speculations about its comeback, but I never expected it to materialise, at least in this budget. Personally I believe cons of having it outweigh pros of having it, but it doesn’t matter at all. What really matters is how harsh this LTCG tax is and why there was no panic selling in the markets today. Let us try to find out.

Firstly, this is what the Finance Minister Arun Jaitley announced in his budget speech today – “I propose to tax such long term capital gains exceeding Rs. 1 lakh at the rate of 10% without allowing the benefit of any indexation. However, all gains up to 31st January, 2018 will be grandfathered. For example, if an equity share is purchased six months before 31st January, 2018 at Rs. 100 and the highest price quoted on 31st January, 2018 in respect of this share is Rs. 120, there will be no tax on the gain of Rs. 20 if this share is sold after one year from the date of purchase. However, any gain in excess of Rs. 20 earned after 31st January, 2018 will be taxed at 10% if this share is sold after 31st July, 2018. The gains from equity share held up to one year will remain short term capital gain and will continue to be taxed at the rate of 15%.

In view of grandfathering, this change in capital gain tax will bring marginal revenue gain of about Rs.20,000 crores in the first year. The revenues in subsequent years may be more.”

What seems a simple thing to read carries many ifs and buts behind it, and the most important here is the “Grandfathering Clause”. We’ll try to clear all these ifs and buts here, so let us take it one by one.

What is this ‘Grandfathering’ clause?

As per Wikipedia, “A grandfather clause is a provision in which an old rule continues to apply to some existing situations, while a new rule will apply to all future cases”.

In our case, whatever gains we have earned on our investments in equity shares or equity mutual funds (including balanced funds) till January 31, 2018 will be grandfathered, or will not be taxed at all. So, whether you sell your equity shares or equity mutual funds tomorrow, or between now and March 31, 2018, or even anytime after March 31, 2018, you will not have to pay any LTCG tax on your gains earned till January 31, 2018, if your holding period is more than 12 months.

So, please keep in mind, there is no need to panic in this situation, as there is nothing which is going to affect your gains till 31 January. There is only one thing that could affect your gains (future gains) adversely in this situation and that is your panic behaviour and nothing else. You should take your ‘sell’ decisions only if you think that other investors will panic and markets will move down sharply from here. Even in this case, your previous gains are not taxable and you would be able to protect your gains from probable future losses.

When will this 10% LTCG Tax come into effect?

It will come into effect from April 1, 2018 onwards. It is still a proposal and not applicable for the gains you book on or before March 31, 2018.

So, should we book our gains before it gets applicable with effect from April 1, 2018?

Absolutely NOT, there is no point doing it for this reason. Your long term capital gains earned till January 31 are 100% safe from this tax and it makes absolutely no difference to that portion of LTCG, whether you sell it tomorrow, or after April 1, or even after 2 years from today.

How would our long term capital gains be taxed if we sell them on or after April 1?

There will be 2 portions of your LTCG when your actually book your gains on or after April 1 – first, LTCG earned till January 31, 2018 and second, LTCG earned between February 1 and the date you sell your holding(s). First portion will be tax exempt, and second portion will be taxed at 10.4%, including 4% health and education cess.

What will be our cost of acquisition for the gains made after January 31, 2018?

There is a formula for determining your cost of acquisition for the shares or mutual funds bought on or before January 31, 2018, LTCG gains earned after January 31, 2018 and gains booked after holding them for more than 1 year. Here you have the formula:

The cost of acquisition will be HIGHER of:

a) Actual cost of acquisition, and

b) LOWER of:

(i) Fair Market Value of the shares/units as on January 31, 2018

(ii) Actual consideration received at the time of transfer

Let us take a look at the table below to understand it with four different scenarios:


How much LTCG is tax exempt?

LTCG upto Rs. 1 lakh per financial year is not liable to any tax, and you will have to pay 10% tax only on your long term gains over & above Rs. 1 lakh of exempt LTCG.

Like debt mutual funds, is there any indexation benefit available for calculating LTCG tax?

No, as the LTCG tax rate of 10% is considered to be on a lower side, indexation benefit to incorporate inflation effect has not been provided for in the budget.

Dividend Distribution Tax (DDT) @ 10% on Equity & Balanced Mutual Funds

Finance Minister Arun Jaitley has decided to tax your dividend income also which you get on your investments in equity mutual funds or balanced mutual funds. Here is what he announced in the budget:

“I also propose to introduce a tax on distributed income by equity oriented mutual fund at the rate of 10%. This will provide level playing field across growth oriented funds and dividend distributing funds.”

The onus of paying it to the government will not be on you. It will be the responsibility of the mutual fund which has announced to pay you this dividend, and it will be in the form of dividend distribution tax of 10%. This 10% will be deducted from the dividend announced and then dividend will be paid to you.

What’s your view on this reintroduction of LTCG tax and dividend distribution tax? Do you think it is going to have a substantial impact on our markets? Please share your views here. Also, if you have any query regarding any of the points mentioned in this post, please share it here.