Tax on Loan Against Securities: What You Should Know About Interest and Deductions

Taking a loan against your mutual funds or shares can be a smart way to meet urgent financial needs without breaking your investments. But there’s one aspect many people overlook: the tax angle. Just like any other financial product, a Loan Against Securities (LAS) also comes with tax implications – especially when it comes to interest payments.

Understanding how this interest is treated under income tax rules can help you make better borrowing decisions. Whether you're a salaried professional, a business owner, or simply someone seeking liquidity, knowing when and how LAS interest can be claimed as a deduction matters.

Key Takeaways

• LAS interest payments may be tax-deductible in specific cases.
• The purpose of the loan plays a big role in claiming tax benefits.
• LAS is often more tax-efficient than personal loans.
• Proper documentation is key to availing deductions.

How Does Tax on Loan Against Securities Work?

Understanding the taxation around LAS begins with the basics: what you borrow, how you use it, and how interest is treated.

Interest on LAS Loan Explained

When you take a LAS, you pay interest only on the amount you use. This interest is not considered income; instead, it’s an expense. But whether it’s tax-deductible depends on how you use the loan.

Tax Benefits of LAS Interest Payments

If you use the LAS amount for business purposes—like buying inventory or expanding operations - the interest paid can be claimed as a business expense under Section 36 of the Income Tax Act (as of 2025).

When Can You Claim Deductions?

You may be eligible for tax deductions if:

• You use LAS funds for business activities
• You invest in income-generating assets (like rental property)
• You can provide clear records proving the usage

Example: If Ramesh uses his ₹5 lakh LAS to upgrade his shop, the interest he pays may be deducted as a business expense.

What Makes LAS More Tax-Efficient than Personal Loans?

Not all loans offer the same tax treatment. Here’s where LAS stands out.

Comparing Tax Benefits of LAS and Personal Loans

Personal loans generally don't offer tax deductions unless used for specific purposes like home renovation. LAS, on the other hand, can be tax-deductible if used for business or income-generating investments.

Why LAS Interest Payments May Reduce Tax Liability

Since LAS interest can count as an allowable expense (for business use), it lowers your taxable income - translating to lower tax outgo. For self-employed individuals or SMEs, this can be a significant benefit.

Tip: Keep your bank statements and usage proof handy to support your claim during filing.

How Is Interest on LAS Treated Under Tax Laws?

Here are answers to some common concerns users have around LAS and income tax benefits.

Is Interest on LAS Always Deductible?

No. Interest is deductible only if the loan is used for business or investment-related purposes. Personal expenses like travel, weddings, or education loans do not qualify.

Example: If Anita takes a LAS to pay for her daughter’s wedding, she cannot claim a deduction on the interest paid.

How to Properly Document LAS Interest for Tax Claims

To claim a deduction, keep these handy:

• Loan sanction letter & interest certificate
• Bank statements showing fund usage
• Proof of business/investment application of funds

Pro Tip: Maintain a separate account or ledger if LAS funds are used in your business. This makes documentation easier during tax filing.

Conclusion

Understanding the tax angle of your Loan Against Securities can go a long way in optimising both your borrowing and your returns. When used wisely for business or investments, the interest you pay may actually lower your tax liability.

If you’re looking for a credit option that keeps your investments intact while also offering potential tax benefits, LAS might be a better alternative than a traditional personal loan. To learn more about this topic, go through our detailed comparison between LAS and personal loan here.

At Quicklend, you get flexible repayment options, competitive interest rates, and support that’s actually helpful.

This is general guidance. For personalized loan advice, speak to a financial advisor.