Borrowing from your parents to buy a house? Here is how tax deduction under Section 24(b) works

If you opt for the new tax regime, you will not be able to claim any deduction in respect of money being borrowed from your father

• Interest paid to your father is deductible under Section 24(b) up to Rs 2 lakh
• Principal repayment to your father is not eligible for Section 80C deduction
• No need to deduct TDS or obtain TAN when repaying loan to your father

Did our AI summary help?

Today’s Ask Wallet-Wise explains how Section 24(b) works for a home purchase under the old tax regime when the loan is taken from your father.

Ask Wallet-Wise initiative offers expert advice on matters related to personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com, and we will try to get a top financial expert to address.

I plan to borrow Rs 15 lakh from my father to purchase a house and plan to repay him on EMI, both principal and interest amount, as per the bank’s floating rate. What steps should I follow to claim home-loan tax benefits and avoid any tax issues for either of us? Do I need a TAN to deduct TDS while paying him?

Expert’s Advice: With respect to a home loan, taxpayers are eligible to claim two deductions. The first deduction relates to interest paid, and the second deduction relates to repayment of principle amount of the home loan.

Deduction for principal repayment is available under Section 80C up to Rs 1.5 lakh, including other eligible items, only if the loan is taken from specified lenders such as banks or housing finance companies, and you fall under the old tax regime. Since you’re borrowing from your father, you can’t claim the Section 80C deduction for principal repayment.

The deduction for interest on borrowed funds is available under Section 24(b) for purchasing, constructing, and even repairing or renovating a house. It applies even if you borrow from friends or relatives. If you opt for the old tax regime, you can claim up to Rs 2 lakh as a deduction for interest paid to your father.

If you opt for the new tax regime, you will not be able to claim any deduction in respect of money being borrowed from your father. You don’t need to deduct tax on the EMI paid to your father, so obtaining a TAN isn’t required.