I have taken a home loan from a housing finance company for buying a residential property for self-occupation. For making the down payment, I have borrowed money from my parents to whom I am paying interest. What certificate would I need to show to my company so that they consider interest payment to my parents eligible for deduction u/s 24. Can I claim deduction for principal repayment u/s 80C on money being repaid to my parents? What can I do if my company does not consider this while deducting TDS?
Name withheld
Reply by: Balwant Jain, a tax expert
Deduction under Section 24(b) of the Income Tax Act, can be claimed in respect of interest paid on any money borrowed for purchase, construction, renovation or repair of your house property. The money can be borrowed from any person including your parents unlike Section 80 C which specifically provides that deduction for repayment of home loan will be available only if the money is borrowed from specified institutions. So you will not be able to claim any deduction under Section 80 C in respect of the repayment of money borrowed from your parents. Please note that deduction under Section 24(b) is available in respect all types of properties whereas the deduction under 80C is available in respect of only residential property.
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The income tax laws do not provide for any specific format for the certificate to be obtained from the lender. However, the certificate should clearly mention the amount borrowed, interest for the period and preferably the details of the property for which the money was given. In case your employer does not accept this certificate, the only course of action available to you is to claim the same while filing your income tax return. You can request your HR/finance department of your company to refer the Section 24(b) property which does not prohibit the deduction of interest if money is borrowed from parents for the specified purposes. The deduction in respect of interest is restricted to only two lakhs rupees if the property is self-occupied. If the property is let out full interest can be claimed but any loss under the house property head can only be set off against other income to the extent of two lakh rupees in the current year and the loss not so set off can be carried forward for set off against house property income in eight subsequent years.
Please note that no deduction under Section 80C is available under the new tax regime. Deduction under Section 24(b) for self-occupied property is also not available under new tax regime. In case of let out property no loss is allowed to be set off and carried forward under the house property income under the new tax regime. So effectively for let out property you can claim interest deduction under Section 24(b) only to the extent of taxable rent of all the let out properties taken together under the new tax regime.
