income tax benefit on loan taken from a near relative for ho

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

11 August 2010 If take a loan from my brother for buying a flat,will i be able to avail benefits of interest paid thereon and principal repayment as per the income tax act.

What sort of documentation needs to be done ?Is there any ceiling on the interest rates that can be charged in such cases?
Any other point that i need to keep in mind?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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11 August 2010 The interest on house property is allowed u/s 24 of the I T Act . The said provision does not provide any restriction regarding the person from whom the loan for house purchase or construction should be taken . The said provision is as under :

24. Income chargeable under the head Income from house property

shall be computed after making the following deductions, namely:

(a) a sum equal to thirty per cent of the annual value;

(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided………..

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees.

Explanation.………….
Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Therefore, one can see from the aforesaid provision the the only conditions for allowance of interest whether Rs 30000 or 1.5 Lacs is that “the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed”. There is no restriction regarding the Person from whom loan can be borrowed. So, you can borrow the house loan from anybody -including your friends or relatives and interest due on such loan borrowed is allowable provided lender issues a certificate to that effect.

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