Taking Home Loan from Parents for House; Can Claim Tax Deduction under 80C and 24(b) of IT Act?
A taxpayer shared he took a home loan for a residential property and to make a down payment on that he borrowed money from his parents to whom he is paying interest. What certificate would he need to show to his company so that they consider payment of interest to make his parents eligible for deduction u/s 24 (b)? Can he claim a deduction for principal repayment u/s 80C on money being repaid to his parents? What he can do if his company does not consider this while deducting TDS?
An Investment expert on a question asked by the taxpayer replied as follows:
Section 24(b) of the Income Tax Act provides a deduction that can be claimed in respect of interest paid on any borrowed money for the purpose of purchase, renovation, construction or repair of your house property. Including Parents, the money can be borrowed from any person. This is provided in Section 24(b) unlike Section 80 C which specifically provides that deduction for home loan repayment will be available only if the money is borrowed from specified institutions.
This is allowed under Section 24(b), unlike the Section 80C which clearly states that the deduction for repayment of a home loan is only possible if the amount of the loan is borrowed from specified institutions.
So, any deduction under Section 80C cannot be claimed regarding the repayment of the loan amount borrowed from your parent.
It is to be noted that the Section 24(b) deduction is available towards all types of properties whereas the Section 80C deduction is for only residential property.
Any specific format in which the certificate should be obtained from the lender is not provided by Income Tax Laws. However, the certificate should outrightly state the borrowed amount, the rate of interest and, possibly, the characteristics of the property for which the funds were provided.
If your employer refuses to accept this certificate, you can only claim it when you file your income tax return. A request can be made to the HR/finance department of the company to consider the Section 24(b) property which clearly does not deny the deduction of interest if money is borrowed from parents.
The deduction on interest is limited to only Rs.2 lakhs if it is a self-occupied property. If it is a rented-out property, you can claim the full interest but any loss under the head of house property can only be set off up to Rs.2 lakh rupees against other income in the current year, with the remaining loss carried forward for set off against income from house property in 8 years following that.
Further, under the new tax regime, no deduction under Section 80C is available. In the new tax regime, the deduction for self-occupied property under Section 24(b) is also not available. No loss is allowed to be set off and carried forward under the income from house property if the property is let out under the new tax regime. Hence, under the new tax regime, you can only claim an interest deduction for rented property under Section 24(b) up to the amount of taxable rent for all rented properties combined.
