Navigating tax deductions can feel like a maze, especially when it involves borrowing money from family for significant investments like a home. Today, I’ll break down how you can claim income tax deductions under Sections 80C and 24(b) of the Income Tax Act when you’ve taken a loan from your parents to purchase a house.
Understanding Sections 80C and 24(b)
First, let’s clarify what these sections entail:
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Section 24(b): This section allows you to claim deductions on the interest paid on loans taken for purchasing, constructing, renovating, or repairing a house property. The good news? You can borrow from anyone, including your parents.
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Section 80C: This section offers deductions on the principal repayment of your home loan, but only if the loan is taken from specified financial institutions. Unfortunately, loans from family members don’t qualify here.
Key Points to Remember:
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Interest on Parent Loans: You can claim deductions under Section 24(b) for the interest you pay to your parents.
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Principal Repayment Limitations: No deductions under Section 80C for principal repayment if the loan is from parents.
Claiming Deductions Under Section 24(b)
What You Need to Provide:
To have your employer consider your interest payments to your parents eligible for deduction under Section 24(b), you need to obtain a certificate from them.
Your certificate should include:
- The amount borrowed from your parents.
- The interest amount for the relevant period.
- Details of the property purchased (address, etc.).
Example Scenario:
Imagine you’ve borrowed ₹5,00,000 from your parents at an interest rate of 6% for your home. Your annual interest payment would be ₹30,000. This amount can be claimed under Section 24(b), providing you meet the documentation requirements.
What If Your Employer Doesn’t Accept This?
If your company refuses to acknowledge your claim for deductions while calculating TDS (Tax Deducted at Source), don’t panic! You still have options.
Steps to Take:
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Communicate with HR/Finance: Present your situation and clarify that Section 24(b) allows for interest deductions from any lender, including parents.
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File for Deductions in Your Tax Return: If your employer still doesn’t consider it, ensure you claim the interest when filing your annual income tax return.
Deductions Are Not Unlimited:
Remember, if the property is self-occupied, your deduction under Section 24(b) is capped at ₹2,00,000. If it’s a rented property, you can claim the entire interest paid.
The Challenge of Section 80C
Now, let’s tackle Section 80C. If you’re repaying the principal to your parents, unfortunately, you cannot claim this under Section 80C. Here’s why:
- Specified Institutions Only: Section 80C deductions are only available for loans taken from banks or housing finance companies, not from individuals like your parents.
What You Can Do:
While you can’t claim the principal repayment as a deduction, remember that every payment you make helps reduce your overall liability on the loan, which is a financial benefit in itself.
New Tax Regime Considerations
If you are considering opting for the new tax regime, be aware that:
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Section 24(b) deductions for self-occupied properties are not available.
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For let-out properties, while you can still claim interest, no losses under house property can be set off or carried forward.
In Summary:
- Section 24(b): Claim interest paid on loans from anyone, including parents.
- Section 80C: No claim for principal repayment on loans from parents.
- New Tax Regime: Review the rules carefully as they limit some deductions.
Conclusion: Stay Informed and Proactive
It’s crucial to stay informed about the tax laws surrounding home loans and family loans. By understanding how to leverage Sections 80C and 24(b) effectively, you can optimise your tax benefits.
Always keep your documents handy and don’t hesitate to follow up with your employer if your deductions aren’t being recognised. And if they aren’t, remember you can still claim them on your tax return!
