Student
3986 Points
Joined July 2018
1. According to sec 24(b) interest on borrowed capital for the purpose of the purchase, construction, repair, renovation of House property will be allowed as a deduction to the extent of Rs. 2 lakhs. Interest can also be claimed on accural basis.
2. They have mentioned it as a person and no mention of Banks or Financial institution. However, there are case laws which corroborate where interest on borrowed capital is allowed when it is obtained from an Individual or tenant for that matter.
3. In the case of Shivom Build Con(P) ltd vs ITO, interest on borrowed capital is allowed which is obtained from Tenant.
4. In the case of Gopi Kishan Purohit VS CIT unpaid purchase price constitute borrowed capital and interest paid on the same will be allowed as deduction.
5. In all the above cases Borrowed capital was from a person other than banks and F.I. Keeping the case laws in consideration we can say that Capital borrowed from your brother is eligible capital and interest paid on the same will be allowed as deduction.
6. However, TDS need to be deducted u/s 195 ( @ 20% in case of foreign currency borrowings or 30% in other cases).
7. In order to claim interest on borrowed capital u/s 24(b), there must be a documentary evidence or any other proof. So it is recommended to have a proper agreement put in the paper.
8. With respect to interest income, it will be taxed in the hands of your brother and as I said before TDS u/s 195 need to be deducted before remittance of such amount.
Please correct me if the above interpretation has an alternative view.