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.