Are personal loan payments tax deductible?

    Have you ever considered taking a personal loan for paying off your tax debt? It may not be recommended or necessary under normal circumstances. But, if you have accumulated substantial tax liabilities which need to be cleared within a certain deadline, a personal loan may be the best option available to you, in order to avoid penalty.The Inland Revenue Authority Singapore (IRAS) website is well-organised. It’ll answer almost all your questions pertaining to rules of deductions, exemptions and payment deadlines. While IRAS is known to be user-friendly, they will most certainly penalise defaulters. Therefore, it may be a good idea to take a personal loan to clear your tax liabilities in Singapore provided you’re short on money.

    Why Personal Loan and Not Credit Card Cash Advance?

    A Personal loan is always preferable over a cash advance because:

    • A credit card cash advance can attract an interest of up to 28% p.a. in addition to cash advance fees in Singapore. Personal loans are usually available between 8-12% p.a. If you’re lucky, introductory rates as low as 4-5% p.a. may also apply. This will save you a lot of money on interest payments.
    • If you go for a term loan, you get to pay back the outstanding balance in fixed instalments that makes planning a budget around it more convenient.
    • Paying off just the minimum balance can build up your debt real fast as interests keep accumulating. However, paying off the fixed monthly amount for a personal loan should be good enough to help you settle your loan on time.

    What Should You Check When You Shop for a Personal Loan?

    Instead of just checking the APR (annual percentage rate) or the flat rate of interest levied by the bank on the loan of your choice, check the Effective Interest Rate (EIR), which includes administrative fees, processing fees and other related expenses. While looking for the best personal loans in Singapore, don’t forget to check the EIRs for each loan.

    Many banks run promotional offers frequently. Some offer introductory interest rates. Some banks offer other joining perks on a successful loan application. One way to filter or sort personal loans is to check the joining bonuses.

    Don’t forget to check the clauses related to prepayment. Some banks may levy charges on full or partial prepayment depending on the product and the terms and conditions governing it. Some banks may waive it, too. Don’t forget to check for it when choosing a loan for settling your tax debts.

    How to Apply for a Personal Loan to Reduce Your Tax Liabilities?

    After you have chosen a personal loan option, you can go to a bank website and make an online application, if available. Alternatively, you may be able to complete a form online, download it and then submit a copy directly to the bank branch by mail or email. You might also submit it in person. Some banks will also have hotlines. If you call the bank on this number, a relationship executive will get in touch with you and help you complete the process.Paying off your tax debts using personal loans is convenient. However, missing out on a payment could attract an overdue interest, a late payment fee, or both. Don’t miss your payments. While most banks won’t carry out extensive verifications to issue a personal loan, they might ask for a reason. If they find your concerns regarding tax liabilities to be valid, they would issue it immediately.

    Tips for Tax Planning for Singapore Residents

    The solution to paying lesser tax is not by evading them. Tax evasion is a punishable crime, but the Singapore government offers legal solutions to help you reduce your tax burden.

    • strong>Employment expenses can be claimed: You can claim any expenses that you incurred during the course of your work and are not reimbursed to you. For example – transport expenses and client entertainment expenses. Keep vouchers and receipts of these expenses as proof.
    • Claim rebates and tax reliefs: The government offers rebates and reliefs for payments made towards various economic and social purposes. These include – Earned Income Relief, Course Fees Relief, Voluntary Medisave contributions, family CPF Account contributions, Supplementary Retirement Scheme contributions, expenses towards maintaining handicapped family members, Life Insurance Relief, contributions toward National Service, Foreign Maid Levy Relief, and Parenthood Tax Rebate. Each of these have different qualifying criteria and deductible amounts.
    • Charitable donations: Cash donations to the Singapore Government or to organisations approved by Institutions of Public Character are tax deductible.
    • strong>Rental expenses: Expenses incurred toward property taxes, repairs, and fire insurance are deductible to the extent notified by the government.
    • Qualifying business expenses: Self-employed individuals can claim expenses that are incurred to earn business income. These amounts must be spent specifically towards business activities. Personal expenses don’t qualify for deduction from income.

    Points to Remember for Effective Tax Planning

    • While applying for deductions, make sure you attach copies of all related bills and documents. Preserve expense receipts for at least 5 years. Bills and receipts must be presented for compliance reviews by the government.
    • Effective Assessment Year 2018, the personal income tax deductions you can claim can’t exceed S$80,000 a year.
    • Get professional help from a qualified tax consultant or accountant to calculate deduction amounts accurately.
    • Use your SingPass to pay your taxes online.

    Other Facts About Taxes and Personal Loans

    • You don’t have to declare any personal loan amount while filing taxes.
    • You cannot claim a personal loan as part of business expenses or list it under business liabilities while filing taxes.

    A personal loan offers a quick-fix solution to help pay your taxes. But there are a few things to keep in mind before applying for a loan. Since banks charge high interest and other penalties on unpaid instalments, apply for the loan only if you are sure of paying your instalments on time. Always look at the Effective Interest Rate (EIR) of the loan since it shows you the true cost of borrowing after including processing and other fees. Shorter tenures have larger instalment amounts but you also pay lower interest amounts. Longer tenures have smaller instalments but you end up paying more as interest. Choose your tenure wisely based on your repayment capacity.

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