Today’s Ask Wallet-Wise describes how Section 24(b) applied to a home purchase under the previous tax system when your father provided the financing.
Ask Wallet-Wise: Section 24(b) Explained
The Ask Wallet-Wise program provides professional guidance on issues pertaining to personal finance and questions about money. You can send your questions to askwalletwise@nw18.com, and we will do our best to have a leading financial expert respond.
In order to buy a house, I intend to borrow Rs 15 lakh from my father. I would pay back the principal and interest on an EMI basis, in accordance with the bank’s floating rate. How can I receive the tax benefits of my house loan and prevent any tax problems for either of us? When paying him, do I require a TAN in order to deduct TDS?
🏠 Section 24(b) Home Loan From Parents
- Loan Source: Father / Family member
- Tax Regime: Old tax regime only
- Interest Deduction: Up to ₹2 lakh under Section 24(b)
- Principal Deduction: Not allowed under Section 80C
- TDS Requirement: Not applicable
Expert’s Advice on Home Loan Tax Deductions
Expert’s Advice: Taxpayers can deduct two expenses related to a house loan. The first deduction is related to interest paid, while the second deduction is related to home loan principle repayment.
Principal repayment deductions under Section 80C up to Rs 1.5 lakh, including other qualifying items, are only allowed if the loan was obtained from specific lenders, such as banks or housing finance firms, and you are subject to the previous tax system. You are not eligible for the Section 80C deduction for principal repayment because you are borrowing from your father.
How Section 24(b) Works for Loans From Parents
Section 24(b) allows for the deduction of interest on borrowed money when buying, building, repairing, or renovating a home. Even if you borrow money from friends or family, it still applies. If you choose to use the previous tax system, you can deduct up to Rs 2 lakh from your father’s interest.
You will not be allowed to deduct any amount for money you borrowed from your father if you choose the new tax system. Getting a TAN is not necessary because you do not have to subtract tax from the EMI you gave your father.
📄 Home Loan From Father: Compliance Checklist
- Loan Agreement: Written and signed document
- Repayment Mode: Bank transfer only
- Interest Proof: Repayment or interest statement
- Tax Reporting: Interest declared in father’s ITR
- Section Used: Section 24(b) home loan from parents
Frequently asked questions
1. If I take out a home loan from my father rather than a bank, can I still deduct it from my taxes?
Yes, if you choose to use the previous tax system, you can only deduct the interest part under Section 24(b). You can deduct interest from loans you get from family members.
2. Can I deduct principle repayment from a loan I took out from my father?
No. Only loans obtained from specific institutions, such as banks or home finance firms, are eligible for the principal repayment deduction under Section 80C (up to ₹1.5 lakh). Parental loans are not eligible.
3. How much interest can I deduct under Section 24(b)?
Even if the loan was obtained from your father, you may deduct up to ₹2 lakh annually for interest paid on a self-occupied home under the previous tax system.
4. Should I deduct TDS on the interest I paid my father?
No, TDS is not necessary for the EMI payments you make to your father on a personal loan. Therefore, you do not require a TAN.
5. Do I need to keep any records in order to prevent tax problems?
Indeed. In order to maintain tax compliance, you ought to:
Possess a formal loan agreement
Use a bank transfer to pay EMIs.
Keep a payback statement or interest certificate.
Make sure your father’s tax return includes the interest income.
Conclusion
Only the interest part is deductible under Section 24(b) (up to ₹2 lakh), making borrowing money from your father to purchase a home tax-efficient under the previous tax system. Section 80C does not allow you to claim principle repayment advantages, and neither TDS nor TAN are necessary.
To prevent attention and guarantee seamless tax compliance for both you and your father, however, appropriate paperwork and transparent transactions are crucial.
Disclaimer
Disclaimer:
This article is for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws are subject to change and may vary based on individual circumstances. Readers are advised to consult a qualified tax professional or financial advisor before making any financial or tax-related decisions.
