This post is in response to our reader Rakesh Patel‘s question about the home loans. He has written me the following question:
I would like to know about taking house loan from family or relative, I mean what is the procedure to get the house loan from family like mother or father, and how it will be helpful to get the tax exemption against this loan, Please help me out to understand the same, if possible
The answer for his question is simple. There is no complicated rule for this provisions. I have personally answered his question, but I would like to share with our readers.
Can I get home loans from parents or relatives?
Yes. if you are buying a house or constructing a house, you can get the home loans from your relatives. If you want to claim the tax benefits on the home loans, then you must get the certificate from the parents for the interest payment which is up to 1.5 lacs per year . Under section 24, one can claim the interest payments for the home loans taken from his relatives subject to the condition that one must submit the interest payment certificate. Without the certificate, income tax department will not accept the tax claim.
Also note that, when your parents are providing the certificate, they have to pay the income tax for receiving the interest from you. There is no deduction allowed under section 80C for the principal repayment to your parents. Only interest repayment can be claimed fro the tax deduction. As far as the principal payments are concerned, they would not qualify for tax benefit as loans only from notified institutions and banks are eligible for such deductions.
So, you don’t always take loans from the bank. It is possible to take loans from relatives too if the circumstances are favor of you. This is another good option available with the section 24. If you have any doubts, please post it in the comments section. Any one of you have got the loans from your parents?. If your answer is yes, please share your experience on income tax deduction here.
June 22, 2012 at 10:02 pm
This is nice thing to know but I am sure there will be many caveats, can you provide us with the more information or link where i can read everything about talking loans from parents and its pros and cons v’s taking loans from banks.
June 23, 2012 at 6:39 am
Hello Rajat,
It is one of the provision provided by the Incom Tax act. You need to follow the steps in this article. If you are working in a company, ask your finance team whether they know this rule.
Thanks,
Krishna
June 22, 2012 at 10:20 pm
Hi,
I have taken loan from my mother, she asked me that I have to pay only interest and no principal. I don’t have any problem in that. Is there any issue as per IT rules?
Also, where can I download sample interest certificate that need be signed by her?
Thanks,
~Jain
June 23, 2012 at 6:43 am
Hello Jain,
It is not a problem. . You can create a certificate signed by her as the proof.
Thanks,
Krishna
August 7, 2012 at 10:40 am
Sir can you mail me the certificate format that should be signed by mother.plz
June 23, 2012 at 8:44 pm
hello all,
My Query is can i get home loan from my friends instead of my relatives & If yes then, will i eligible to get interest deduction u/s 24
thanks in advance
waiting for your reply……………
June 25, 2012 at 5:29 pm
Hello anup,
You can not get from the friends.
Thanks,
Krishna
June 24, 2012 at 10:24 am
It’s a truely useful topic which is required to be discussed. Despite I am a student of CA, I was unaware of such provisions. Thanks My Krisnas.
June 25, 2012 at 5:31 pm
Hello Mihir,
Thank you for reading my blog.
Thanks,
Krishna
June 26, 2012 at 2:48 am
Hi Krishna, will this rule apply even when loan is taken for repair, renovation and like purposes?
June 26, 2012 at 5:58 am
Hello Garima,
The rule is not mentioned on specific things. But, you unlikely to get exemptions for those kind of work.
Thanks,
Krishna
July 4, 2012 at 11:22 am
Hi Krishna,
Let’s say, I pay 1 Lakh as interest to my father. you said, my father has to pay tax for the interest he receives. should he pay tax even if the interest (1 Lakh) is the only income to him ? as per IT act, if total income < 1.8 Lakhs, no need to pay tax right ?
Thanks,
Bala
July 4, 2012 at 5:37 pm
Hello Bala,
Yes. If it is his only income then he need not pay the tax. My question is how he got that money for owing you. Please consider that also to avoid any problem in the future.
Thanks,
Krishna
November 2, 2012 at 3:16 pm
Hello Krishna,
with respect to the discussion i would like to get clarified that “what if he had provided me the money out of his retirement benefits”.
Regards
Jagan
November 2, 2012 at 8:56 pm
Hello jagan,
The process would be same. There won’t be any difference.
Thanks,
Krishna
July 7, 2012 at 12:50 am
I think the information on home loan is written here is quite informative and secondly I like the quality of the content.
July 7, 2012 at 5:16 am
Thank you for the comments.
Thanks,
Krishna
July 14, 2012 at 10:34 pm
I am a NRI in UAE looking for res. flat in Mumbai with a bank loan. Can I repay the loan from my NRE savings and funds received from sale of ancestor property recently which was in name of my father = a senior citizen. IF yes how if no why
July 30, 2012 at 5:52 pm
Brilliant tips. I have just stepped into work field and don’t have detailed knowledge about the same. But I know, in case of necessity such a scope is available. Can you please give us some more details about this particular opportunity regarding how and when to avail it? Thanks a lot for sharing.
Jennifer Goldblum
October 7, 2012 at 12:58 am
Hi,
My father (resident Indian) works in PSU. He has taken a Home Loan from SBI. I have started working in Hong Kong last month. Can I repay his loan??
I am planning to borrow Personal Loan in HK (which is at 6%) and repay the home loan of my father. Hence I can pay installments of personal loan in HONG KONG myself.
Please advise.
November 4, 2012 at 9:14 pm
Hello Chandan,
This has to be discussed with your bank which is in Hong Hong. Whether the money can be sent to India. If they are fine, there won’t be any problem in repaying the loans.
Thanks,
Krishna
November 4, 2012 at 11:51 am
Hi,
Can I claim IT benefits for paying the EMIs for a loan which is in my mother’s name?
November 4, 2012 at 9:12 pm
Hello Arvind,
No. The loan must be in your name.
Thanks,
Krishna
December 30, 2012 at 7:39 pm
Sir I would like to know whether I can sell my house to repay my son’s Home loan; so that he can buy house in Bangalore bigger house what are the implication, whether it is possible pl.advice
March 15, 2013 at 5:48 pm
Sir,
My wife has purchased a house on her name and I have helped her by getting some amount of loan from my relative.
I am working in a private organization and hence can i claim the rebate for the interest I am paying them?I have also submitted the interest certificate to the organization but my company is asking me the clause which allows the above as legal from the IT books.
Please clarify the above.
March 16, 2013 at 6:32 am
Hello Satish,
If you want to claim the income tax benefits, the house must be in your name. Otherwise you will not get any tax benefits.
Even though house is in your name, getting loans from relatives is not an usual activity done by everyone. But, there is a clause in the IT act for the tax exemption. You have to explain your finance dept. for the same.
Thanks,
Krishna
April 20, 2013 at 3:57 pm
Sir,
I wish to take a loan from my sister for 3 lacs to avoid taking a higher home loan amount. I will return to her the 3 lacs in next 6 months when some of my FDs will mature.So, can I take a loan with 0% interst or if not zero then very less like 0.5 or 1%. Do you see any tax implications somewhere?
Thanks
Pradeep
May 7, 2013 at 10:34 pm
Hello Krishna,
Can you please tell me if wife is a valid relative in this regard?
Basically, can i save income tax on interest paid to wife? Also, is there a need to have some agreement with relative on stamp paper regarding loan before the purchase?
Is there any limit on what interest the relative can charge me?
Regards