Paydayloanskentucky.org – Are loan payments tax deductible? Dealing with tax is never a fun thing for most people, especially when it involves loans. However, as it’s mandatory, nobody can’t avoid it, even in Nigeria with a tax ratio much less than in the US.
Therefore, in this post, we’ll try to explain this subject for you. By the end of the article, you will get the general idea about debt tax deduction for student, personal, mortgage, and business debt.
Is Debt Tax Deductible?
Nigeria’s tax to GDP ratio is 8% in 2022. Compared to other emerging nations, it is among the lowest in the globe. However, as the vice president said, the country will continue its efforts to increase the ratio.
While a higher tax to GDP ratio means a good thing for the country, those who need to pay tax will have different opinions to say. A tighter tax regulation might also worry people with a bad financial situation. Hence, the reason why people ask, “Are loan payments tax deductible or not?”
Tax deduction, in a simple definition, is an item or condition someone can use to deduct the taxable income to lower the tax they have to pay. Getting a loan mostly means that you are struggling financially or in the process of getting something. It’s quite reasonable to ask whether we can deduct tax on it or not.
Are Loan Payments Tax Deductible in Nigeria?
Nigeria, just like other countries in the world, has its own regulations regarding tax deductions. There are indeed some conditions that will make you able to get a deduction. For example, a donation to a research center. A donation or charity to such a facility is certainly deductible.
Sometimes, it also includes the interest and payments of various loans. However, it’s not universal, and it’s better to look up the information about each type of loan.
Are Loan Payments Tax Deductible?
There are different types of loans you can get in Nigeria. Each loan has its own purpose. A student loan, for example, is a loan to help students finish their education. On the other hand, a personal loan can be used for different kinds of reasons, depending on the debtor.
Below are the common loans in Nigeria and whether we can deduct taxes on them or not.
Is Personal Loan Interest Tax Deductible?
Personal loans in general are not tax deductible. It’s not only in Nigeria. Such a loan indeed can’t be used to deduct tax around the world. The reason is quite simple.
A personal loan, as explained, is a loan with various purposes. Governments tend to allow deductions for something that has an impact on society or the country, like donations or charity. Since a personal loan has a very subjective usage, it’s not deductible.
Are Loan Payments Tax Deductible for a Business Purpose?
The Nigerian government will actually ease your financial problems if you take a loan for business purposes. Tax deduction is applicable for the following conditions:
- Interest for business purposes
- Rent to earn income.
- Maintenance and repair of tools used in your profession.
- Capital borrowing to generate taxable income.
- And other related activities.
It’s not always a 100% payment deduction, however, it definitely will help your business.
Are Student Loan Payments Tax Deductible?
In countries like the UK or Germany, student loans are deductible. Anyone who pays for the student loans, whether they are the parents, spouses, or the students themselves, can get a deduction.
However, no such law can be found in Nigeria yet. The National Assembly has just proposed a new regulation regarding student loans. It could be a good thing in the future, but as of now, there is no clear regulation about whether a student loan is deductible or not.
Is Loan Interest Tax-Deductible for Home Mortgage?
You actually can get a tax deduction for a home mortgage in Nigeria. It’s based on section 20(1)(b) of PITA year 2011. However, it only states that you can get relief for the interest, not for the whole mortgage payment.
Moreover, Lagos State Internal Revenue Service or LIRS limits the relief with 2 special conditions. First, it’s only for the first applicant, and second, it has to be an asset with a low value.
So, Are Loan Payments Tax Deductible in 2023?
Based on all the explanations above, it can be concluded that some loan payments and interests are deductible. However, it should be understood that a change could happen in the future.
In 2022, there is already a new bill regarding tax regulations. The legislature is currently considering a change in tax laws such as the company’s income tax act and the value added tax act. In 2023, it’s possible to have a change in the loan payment tax.
That’s why you need to keep your eye on this. It’s important, especially if it involves your business. In that case, you won’t be confused and ask, “Are loan payments tax deductible?” over and over again.
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