👍👍👍Tax Query: When deduction towards principal repayment of a home loan is allowed – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/portfolio/personal-finance/tax-query-when-deduction-towards-principal-repayment-of-a-home-loan-is-allowed/article66516585.ece

In this instance, the individual is a senior citizen who has retired and receives a pension income

As co-owner of flat and a co-borrower of the loan, an individual could claim the interest cost subject to the maximum limit specified

  I have availed a loan from SBI for purchase of a flat.

The property is in the joint name of my wife (first name) and myself (second name). The loan is in the name of my son (first name), my wife (second name) and myself (third name). The house property is self-occupied from the current FY. My son’s name was added in the loan account, as I have retired from service and crossed 65 years of age.

My son is an IT assessee, and he is regular in filing his returns. Since the property is not in his name, he has not shown this in his IT return. My wife is a homemaker and her income from bank deposits and dividends is within taxable limits. She files her IT return to get the refund of TDS. I am a Bank Pensioner and am regular in filing returns. The monthly instalments for the home loan are fully paid from my pension income. 

Please advise me whether I can claim 100 per cent of the benefits under Section 80(c) for the entire principal amount repaid and 24(b) for the entire interest repaid in the home loan account myself.  

Arunachalam R

We understand that the individual is a senior citizen who has retired and receives a pension income. The individual’s spouse is a homemaker and has minimal income from bank deposits and dividends that fall below the taxable threshold. The individual and his spouse have purchased a flat in their joint name which is self-occupied from the current financial year.  We also assume that the individual would be using the flat as self-occupied throughout the said financial year and it has not been let out for any part of the year.

A home loan has been availed by the individual from a bank for the said flat purchase. We understand that the loan is in the name of the individual’s son, along with the individual and his spouse. We understand that the son’s name was added to the loan due to conditions laid down by the bank since the individual has retired and is over 65 years of age. However, the son does not own the flat; hence we assume that his name is in the loan agreement merely for administrative purposes and other stipulations of the bank. We understand that the loan instalments are serviced in total only by the individual through his pension income. We assume his son and spouse do not contribute to servicing of the instalments. It can, therefore, be stated that the individual has contributed the entire sum for purchase of the flat, including the loan taken, and is the owner of the flat though the purchase documents reflect the flat as co-ownership.

As per section 80C of the Income-tax Act, 1961 (“the Act”), an individual could claim a deduction towards principal repayment of a home loan subject to the prescribed conditions; some of which specify that the individual needs to be the owner of the property and the borrower of the loan. As per the facts, the individual is a co-owner of the flat and a co-borrower of the loan, and is the only one servicing the instalments, he may be eligible to claim the principal repayment of home loan to the maximum limit of ₹1.5 lakh (assuming no other contributions that are eligible for a similar deduction are availed e.g. Life insurance premium, ELSS payments, etc.)

Further, as per section 24(b) of the Act, for self-occupied house properties, an individual is allowed to claim a deduction on account of interest on capital borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property to a maximum limit of ₹2 lakh (assuming all conditions are met). Hence, as the co-owner of the flat and a co-borrower of the loan, the individual could claim the interest cost subject to the maximum limit specified.

The writer is a Partner with BDO India LLP

Send your queries to taxtalk@thehindu.co.in

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