I am 42 years and residing with wife and kids in Shivvamogga. I used to stay on my father's property, but now I plan to buy my own house. I will take a loan from a relative and buy this home. I have an important question. Will I get tax benefits on this loan as I have not taken it from a bank or NBFC?
You get tax benefits if you take a loan from relatives and friends and the purpose of the loan is the purchase or construction of a property. You have to convince the tax assessing officer that the purpose of the loan is the construction or purchase of a house/property and if you are constructing your house, the construction has been completed within 5 years and other conditions have been met. Your relative should charge a reasonable interest and provide a legal certificate of interest along with his name, address and PAN. You get only the tax benefit under Section 24 (EMI Interest component on home loan) up to INR 2 Lakhs a year. You do not get the tax benefits on interest under Section 80EE up to INR 50,000 a year for first time home buyers. You also don't get tax deductions of INR 1.5 Lakhs a year on the principal component EMI (home loan) under Section 80C. You get this benefit only if you take a loan from bank, NBFC or your employer.