Deduction of interest paid on money borrowed from friends and relatives
I borrowed from my wife to buy a house. I understand that interest on money borrowed from relatives, including my wife, is deductible under section 24 (b). Are there any restrictions on the interest rate that can be paid to relatives? Whether a formal stamped or registered agreement is required for this purpose and whether it must be attached to the RTI (Income Tax Return)?
Under section 24 (b) of the Income Tax Act, you can claim a deduction for interest on a loan taken out for the purpose of buying, building or repairing and renovating your home. . Such a loan can be taken out from anyone, including your friends and relatives. Thus, the interest on the loan taken out from your wife may also be deducted under Article 24 (b). Although there are no explicit conditions as to the interest rate under the tax laws, you can pay on such loans, but the interest rate on such loans must be reasonable and comparable to those available on the market. It can be compared to the rare effective home loan.
In accordance with the latest provisions of the law, you are not authorized to attach a document to your income tax returns concerning any of your requests for deductions or exemptions, including for the request for interest, but you are required Obtain and keep on file documentary proof of the loan and the interest paid may be required by the appraisal officer in the event your tax return is selected for detailed review. Although it is not mandatory to enter into a formal written and stamped agreement, you must obtain a certificate from the lender specifying the amount of interest relating to this loan for the year in the event that the home ownership is independent. You must also be able to prove that the money you borrowed was used to buy your home.
Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on Twitter.
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