Home Loan and Income Tax FAQs

1. If a home loan is taken by a father and the loan has been sanctioned on the basis of his son’s salary, can the son claim tax rebate & deduction in respect of the interest payments?
   According to the Income Tax Act, the person who has taken the loan can claim tax rebates. Hence in this case only the father will be eligible for the tax rebate. Son has to be co-Owner in the property to avail benefits of housing loan.

2. Is the tax deduction allowed if the loan is taken from friends or relatives?
   Interest payment to friends and relatives can be claimed u/s 24 but only against a certificate received from them. In the absence of the certificate, you would not be eligible for the deduction. The recipient of interest income who issues the certificate is liable to pay tax on the interest income that he receives. As far as the principal payments are concerned, they would not qualify for tax benefit as loans only from notified institutions and banks are eligible for such deductions.

3. My husband and I have jointly taken a home loan. He pays 75 percent of the EMI. What will be our individual tax benefits?
   As this is a case of joint home loan, both husband and wife are eligible for tax exemption for their respective share of the EMI (Equated Monthly Instalment) paid. The repayment of the principal amount of loan is claimed as a deduction under section 80C of the Income Tax Act up to a maximum amount of Rs. 1,50,000/- individually by each co-owner.

   The repayment of the interest portion of the EMI is also allowed as a deduction under section 24 of the Act. In case house is self occupied for which home loan is taken, both of you shall be entitled to deduction in the ratio (3:1) on account of interest on borrowed money up to a maximum of Rs. 2,00,000/- individually. If the house is given on rent, there is no restriction on this amount and both co-owners can claim deduction in the ratio of ownership- 3:1 in your case.

4. I have borrowed money for renovation of house. Can I claim a tax deduction if I spent money on renovations for my house?
   Under Section 24 of the Indian Income Tax Act, 1961, the interest that is payable on the home improvement loan is however tax deductible for up to Rs 30,000 p.a. This forms a part of the complete tax benefit of Rs.2,00,000 that is available per annum under this section for the interest paid on home loans.

5. Can one get Income Tax benefits for land purchase loan?
   No. If you take loan only for land purchase, you are not eligible for any IT benefits. If you take a composite loan (land and house construction), only after the completion of the construction will you be eligible for income tax benefits.

6. Can I continue to get IT benefit after shifting my loan account to another bank?
   Yes. You continue to get tax benefit on the previous outstanding loan. If you have topped up the loan while transferring your account to another bank, you will not be eligible for IT benefits on the top-up amount.

7. Can I claim HRA benefits and can my wife claim IT benefits on home loan?
   No. If you are staying with your wife in the property for which your wife is claiming IT benefits, you cannot claim HRA benefits.

8. If the property is owned by a woman who has no income, then as a co-applicant, can her husband claim IT benefits?
   No. Income tax benefits are available to only property owners. If you are a co-owner of the property, then you can claim IT benefits.

9. Can one claim tax benefits for acquiring a second house?
   Yes. While for the first home (self-occupied), you can claim deduction up to Rs.2 lakh a year towards interest paid on the home loan (Under Section 24) from your taxable income, there is no limit for claiming deduction for interest paid on the second home loan, but you need to add rental income called annual value of your second house to your income. The annual value will be the higher value of the following: actual rent received a year; municipal value; and fair rent fixed by the Income Tax Department.

   Out of the total annual value, there is standard deduction of 30 per cent available on rental income towards rent collection and maintenance charges and municipal taxes, as well as insurance premiums paid on the property can be deducted. If you have not rented out the second house, you need to consider notional rent for income tax calculations.

   However, deduction in respect of principal loan repaid is restricted to Rs.1,50,000 from both the home loans (Under Section 80C).

10. I work in Gurgaon and live in a rented property. I own a house in other city and receiving rent from there. Can I claim HRA and benefit of Housing loan that I own in other city, as mentioned.
    Yes. Please read detailed explanation at https://cleartax.in/s/claim-hra-deduction-home-loan-interest

11. Can I claim tax benefit of HRA if I stay in my own house?
    No, one cannot enjoy the tax benefits of own house with HRA, as one cannot pay rent to oneself. Hence, whole of HRA received becomes taxable under “Income from Salary”.

12. Can I pay rent to my parents or spouse and avail HRA benefits?
    You can pay rent to your parents and avail the benefits. But, your parents will then need to account for the same under ‘Income from other sources’ and will be entitled to pay tax for the same. However, you cannot pay rent to your spouse. In view of the relationship when you take up residence together, such a transaction does not bear merit under tax laws. Bogus transactions can only lead to troubles under scrutiny; so stay clear of these.

    Source: https://cleartax.in/s/can-i-pay-rent-to-my-parents-to-save-tax