e have been flooded with queries on whether or not individuals can take a home loan from their parents. Or, anyone else for that matter.
Here are 5 common questions relating to where one can take a home loan from and the tax implications.
First, let's explain the tax benefits on a home loan. 
Section 80C
The principal repayment you make on your home loan is eligible for income deduction under Section 80C. The principal is the actual amount you borrow from the home loan company and does not include the interest payments.
Incidentally, registration and stamp duty -- if covered in the home loan -- fall under this limit.
Let's say that your taxable income is Rs 100,000 and you repaid the home loan principal of Rs 40,000. Your taxable income drops to Rs 60,000 (Rs 100,000 - Rs 40,000).
The maximum deduction allowable under Section 80C is Rs 1,00,000.
This will include certain investments -- provident fund, public provident fund, life insurance premium, equity linked savings schemes of mutual funds, infrastructure bonds, pension plans -- and home loan principal repayment.
There are no sub-limits within this section; you can utilise the entire Rs 1 lakh exemption for home loan principal repayment deduction if you choose.
Section 24
Under Section 24, the maximum amount of interest that can be deducted from your income is Rs 1,50,000. As a result, your taxable income decreases by that amount. This is only applicable if you are using the property bought for self-occupation.
Let me explain with an example.
Salary income: Rs 3,50,000
Interest payment on home loan: Rs 1,60,000
Taxable income = Rs 3,50,000 (income) - Rs 1,50,000 (maximum limit for interest on home loan) = Rs 2,00,000
1. From where can I take a loan?
From any recognised lender.
This could be a housing finance company like HDFC, LIC Housing Finance, GIC Housing Finance and Dewan Housing Finance.
Nationalised banks like Corporation Bank, Dena Bank, Vijaya Bank and Bank of India too offer home loans.
ICICI Bank, Kotak Bank, UTI Bank and IDBI Bank are some of the private banks in this sector.
And, of course, the foreign banks like ABN Amro, Standard Chartered Bank, Citibank, HSBC and ING Vysya Bank are the other players.
Here are some web sites of home loan companies and banks.
ABN AMRO
Bank of Baroda
Canara Bank
Central Bank of India
Citibank
Corporation Bank
Dena Bank
Dewan Housing Finance
HDFC
HSBC
ICICI Bank
IDBI Bank
Kotak Mahindra Bank
LIC Housing Finance
Punjab National Bank
Standard Chartered Bank
State Bank of India
Syndicate Bank
UTI Bank
Vijaya Bank
2. Can I take a loan from a family member?
Sure you can.
In fact, you can take a loan from your parents, siblings or even a distant relative. You can even take a loan from your spouse or a friend.
3. What is the drawback of taking it from an individual (as mentioned above)?
If you take a loan from a recognised lender, you will be able to avail of the tax benefits under Section 80C and Section 24.
If you do not take the loan from a recognised lender but do so from a relative or friend, then you only get part of the tax benefit.
The interest you pay is eligible for deduction under Section 24.
However, you will not get the benefit of principal repayment under Section 80C..
To be eligible for the deduction of principal payment, the loan has to be from a list of recognised lenders such as banks, financial institutions or your employer company.
4. What documentation must I show to get a loan from a family member?
You must document the loan accurately. Ensure that you take the loan by cheque.
When you repay, make sure you do it by cheque only.
Get a statement from the lender stating the amount paid by you every year.
When you take a loan, document it legally. Make sure that it has the lender's name and your name, the loan amount, the repayment tenure and the rate of interest.
5. Can I take a home loan from both, a bank and my parents?
Yes.
In this case, you will need a certificate from both the bank as well as your parents certifying the amount of interest payable.
This certificate will need to be enclosed along with your income tax return.
The principal paid on the loan to the bank will be eligible for deduction under Section 80C within the overall limit of Rs 1,00,000.
No deduction is available for repayment as far as returning the loan principal to your parents is concerned.
In conclusion
Do note, all the above conditions are based on the assumption that the loan is been taken only for the purpose of acquiring or constructing a property and that the nexus between the loan and the purpose of the loan can be proven objectively.
The answers will be different if these conditions are not met.
Illustration: Rajesh Karkera
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