While computing income from other sources, one of the most important deductions which you can claim is the deduction for payment of interest on loan. There is no upper limit of the rate of interest. An assessee can take a loan from any person and at any rate of interest. For instance, the interest paid on loan taken for hire of plant and machinery, etc., would be allowed deduction. However, as per the Finance Act, 2003 the dividend income as also the income from units of mutual funds is exempted from income tax. Hence from the point of tax planning do not borrow money to make these investments because the
interest on loan, if any, now paid by you would not be allowed as a deduction in view of the complete tax exemption of dividend income and income from units of mutual funds.