Yes it is possible. Unfortunately, not many people know about it.
But there is a catch. It’s not easy to get this benefit and also, it depends on the final use of the money taken as personal loan.
Personal loans in general have no restriction on the end use of the money. But if you want to claim tax benefits, you need to use the loan money for the purpose of construction, repair or purchase of property.
Now housing loans already get special treatment when it comes to taxation. But as per the laws, the government gives benefit for ‘loans’ (and not just housing loans) taken to purchase or repair residential property. So if you take a personal loan and spend the money on renovation of your house or property, it can be considered as legal expenses for claiming deduction. That is not all, you can even use the loan money for down-payment of your property and still get tax benefits!
One of the operational difficulties in this approach though is that you need to provide adequate proofs to tax authorities about having used the money for purpose of purchase / repair of your property. This can be tough and this is the reason that taxation experts generally avoid suggesting this route to clients.
But let us not forget that personal loans are given at high interest rates. Much higher than housing or top-up loans. It is for this reason that it is always best to take a home or property loan for buying or repairing property. So irrespective of the potential tax benefits, choose personal loan only as the last resort for your property needs.
Also, if you do apply for personal loan for property related expenses, make sure that you keep enough documentary proofs to help you establish the end use of the money.
