Understanding Tax Deductions for Understanding Tax home Home loan for parents
When it comes to claiming tax deductions for a home loan taken from your parents, certain rules apply under the Income Tax Act.
Section 24(b) of the Income Tax Act allows for deduction in respect of interest paid on money borrowed for the purchase, construction, renovation, or repair of a house property, regardless of the lender, even if it’s your parents. This is in contrast to Section 80C, which specifies that deductions for home loan repayment are only available if the money is borrowed from specified institutions. Consequently, you cannot claim a deduction under Section 80C for the repayment of money borrowed from your parents.
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It’s important to note that while the deduction under Section 24(b) is available for all types of properties, the deduction under Section 80C is limited to residential property only.
There is no specific format provided by income tax laws for the certificate to be obtained from the lender. However, the certificate should clearly mention the amount borrowed, the interest for the relevant period, and preferably the details of the property for which the money was given.
If your employer does not accept this certificate, your recourse is to claim the deduction while filing your income tax return. You can also request your HR/finance department to refer to the provisions of Section 24(b) of the Income Tax Act, which do not prohibit the deduction of interest if the money is borrowed from your parents.
Under Section 24(b), the deduction in respect of interest is limited to Rs 2 lakhs if the property is self-occupied. If the property is let out, the 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 Rs 2 lakhs in the current year, with the remaining loss carried forward for set off against house property income in subsequent years.
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Furthermore, it’s important to note that no deduction under Section 80C is available under the new tax regime. Similarly, deduction under Section 24(b) for self-occupied property is also not available under the new tax regime. In the case of a let-out property, the new tax regime stipulates that no loss is allowed to be set off and carried forward under the house property income. Thus, for a let-out property, the interest deduction under Section 24(b) is restricted to the taxable rent of all let-out properties taken together.
It’s important to consult a qualified financial expert or a SEBI-registered investment advisor for personalized advice on tax deductions and investment decisions.
Read more: Income from House Property- Deduction of Interest u/s 24(b)