12 October 2013
I am going to purchase a house property worth Rs 45 lacs and taking a bank loan of Rs 30 lacs for it. I am a salaried employee and does not own any house property in my own name. Although I have a flat (purchased in 2008 under Power of Attorney in name of my mother). With a pure intention to save stamp duty (of around 2% on cost of purchase) and also to avail income tax deductions, I wish to use the following route to acquire the above mentioned house. Route I will buy the house in name of my mother (registry in her name). Bank loan will be in her name with my name as co-applicant (as she will not be eligible for 30 lac bank loan due to her low monthly income). Although she will use her own funds for balance portion (15 lacs, 45 minus 30). On the date of registry, my mother will sell the house to me at same price (or with some mark-up) through a sale agreement (this will not be registered) and/or power of attorney in my name. Sale agreement will also comprise that I will take over bank loan from her. Now EMIs will be paid from my account only. Thus it will make me owner of the house as per section 24, 27, 269UA of the Income Tax Act 1961 and i will be eligible for income tax deduction of housing loan interest and principal. Instead of going for sale agreement with my mother (as stated in above para), my mother can make a will in my favour in regard to above mentioned house which may or may not be registered. This will make me owner of the house as per section 24, 27, 269UA of the Income Tax Act 1961 and i will be eligible for income tax deduction of housing loan interest and principal. Please give your suggestion on my understandings or suggest any other option.
Your strategy to acquire the property through your mother and then transfer it to yourself is well-thought-out, but there are several important considerations and legal implications you should be aware of. Here’s a detailed breakdown and some suggestions:
### 1. **Tax Implications and Deductibility**
**Income Tax Act (ITA) Sections:**
- **Section 24**: This section allows deductions on interest paid on home loans. To claim this, you must be the owner of the property. - **Section 27**: This defines "owner" for tax purposes and includes individuals who hold the title deed. - **Section 269UA**: Deals with transactions involving transfer of property and related implications.
**Current Understanding:**
- To claim tax benefits, you need to be recognized as the legal owner of the property. This usually means having the title deed in your name. - The sale agreement and the power of attorney arrangement may not suffice for claiming deductions if the title deed is not transferred to you.
### 2. **Routes to Consider**
**Route 1: Sale Agreement and Power of Attorney**
- **Pros**: This allows you to save on stamp duty and facilitates immediate possession and use. - **Cons**: This route may have legal and tax complications. The Income Tax Department might not recognize the sale agreement alone for tax deductions. The power of attorney doesn’t transfer ownership for tax purposes.
**Route 2: Will**
- **Pros**: A will is a legal document that can transfer property upon death, which is a more secure and legally recognized method. - **Cons**: You will not immediately have ownership or the ability to claim deductions until the will is executed, which happens only after your mother’s demise. This is not a feasible approach if you need to claim deductions immediately.
**Alternative Route: Direct Transfer**
- **Purchase and Transfer**: Consider buying the property directly in your name from the start, if feasible. This involves paying the stamp duty but ensures that you are the legal owner and eligible for tax deductions right away. - **Loan in Your Name**: If you can qualify for the bank loan on your own or with a co-applicant other than your mother, this simplifies the process.
### 3. **Legal and Compliance Issues**
- **Stamp Duty**: Buying the property directly in your name incurs stamp duty, but this is a straightforward process. - **Loan Transfer**: Transferring a loan post-purchase involves paperwork and consent from the bank. If your mother initially takes the loan and you assume it later, ensure that all documentation is clear and that the bank agrees to the transfer.
### 4. **Suggestions**
- **Consult a Legal Expert**: Given the complexity of property laws and tax regulations, consult a property lawyer to ensure compliance with all legal requirements and to explore the best route based on your specific situation. - **Tax Advisor**: Speak to a tax advisor to ensure that your plan aligns with the latest tax regulations and to get advice on the most effective way to claim deductions.
In summary, while your plan to save on stamp duty and use tax benefits is creative, it might be better to either purchase the property directly in your name or consult with legal and tax professionals to explore all viable options and ensure compliance with all legal and tax obligations.
CAclubindia
