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KALYANA SUNDARAM.T.V. (Querist)

01 October 2011 Dear Sir,

Kindly answer my following query

I am buying a house for which the source is met out partly from my savings, loan from schedules bank and partly from interest free loan from my brother and sister.

Now my query is:

1. Did my brother has to show the interest income while filling his tax return even though the same is paid out his taxed income and as interest free loan.

2. What is the procedure to be followed in my books of accounts?

3. In case of self occupied property is it possible to claim both interest and principal as deduction in my assessed income?

Thanks and Regards

T.V.Kalyana Sundaram

CA. Deepak Narula

CA. Deepak Narula (Expert)

01 October 2011 Answers:

1. If your brother has given you interest free loan, there is no need to show interest in his income because interest is not actually paid. But make sure that loan is given and repaid through account payee cheque or bank draft only, because section 269SS and 269T are applicable.

2. In your books of accounts you can show your house property and corresponding credit to bank loan and unsecured loan. Journal Entry:
Property A/c Dr. 1000000
To Bank Loan A/c 500000
To Unsecured Loan A/c 200000
To Own cash/bank a/c 300000

3. Yes, it is possible to claim both interest and principal on repayment of loan taken from bank but for unsecured loan only interest can be claimed (which in this case is nil) and principal can not be claimed. Please keep in mind the overall limits of deduction u/s 24(b) for interest and u/s 80C for principal.

More replies may be awaited.

CA PRAVIN

CA PRAVIN (Expert)

01 October 2011 1. Your brother need not show interest income as no interest is actually paid.Further Sec. 269SS & 26T will not attract as brother is relative. You can treat it as a gift. Gift is allowed in cash.

2.As suggested by Mr Deepak.

3.You can claim the deduction of interest and principal only which is paid to bank.
Because Sec 24 says, payment of interest should be paid to bank or financial institution.

CA. Deepak Narula

CA. Deepak Narula (Expert)

03 October 2011 As per my understanding, Section 269SS and 269T are applicable even for loans from relatives.

Correct me if I'm wrong.

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