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Huf loan to karta

Arpit (none) (35 Points)

13 December 2013

ABC is a salaried professional and karta of ABC (HUF); and needs Home Loan.

1. ABC (HUF) takes overdraft against FD from bank at x% rate and pass the sum to ABC as Interest Free Home Loan :- In this case can either ABC or ABC(HUF) claim Income Tax benefit of Home Loan?

2. If ABC (HUF) take overdraft against FD from bank at x% rate and pass the sum to ABC as x% Interest Home Loan :- ABC can take benefit of Interest paid on Home Loan (upto limit); but will the interest paid by ABC to ABC (HUF) be taxable in hands of ABC (HUF)? Also, will TDS need to be deducted by ABC on the interest paid ?

Looking forward to your responses.

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4 Replies

Manish Bhandari (C.A) (496 Points)
Replied 13 December 2013

In the first scenario HUF taking loan and passing as Interest free wont be allowed. Also even if the loan is paased to ABC and ABC makes a repayment of Interest & principal ABC can claim it as Housing Interest & Loan. HUF will just transfer the receipts from ABC to the overdraft without any benefits.

In the second scenario HUF has availed loan and passed to karta at marginal rate of interest.ABC interest payment willbe Interest on Housing Loan for ABC, HUF interest receipts from ABC will be income but can set off against the interest payment to bank overdraft as expenses incurred for earning that income. No TDS is required by ABC as he is salaried.

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Arpit (none) (35 Points)
Replied 13 December 2013

Hi Manish,

Let me understand your comments on scenario 1 :

a. HUF is not allowed to pass loan as interest free - reason being he has to pay interest from pocket in this case ?

b. So, if HUF passes the loan with same interest rate (i.e rate at which HUF took loan from Bank) to ABC --- then ABC can claim tax benefit. And, as per HUF --- it will have to write interest paid to bank as charges paid for interest income earned from ABC. As both interest paid and interest earned will be equal; there will actually be no income taxable ? Under which table/section of ITR(2) will this be covered ?

Manish Bhandari (C.A) (496 Points)
Replied 13 December 2013

As far as same rate of interest from bank to member by HUF is concerned it will case of chances. But would suggest if you can charge .0.50% extra from member to show genuinity in the transaction.

Arpit (none) (35 Points)
Replied 10 July 2014

Originally posted by : Manish Bhandari
	In the first scenario HUF taking loan and passing as Interest free wont be allowed. Also even if the loan is paased to ABC and ABC makes a repayment of Interest & principal ABC can claim it as Housing Interest & Loan. HUF will just transfer the receipts from ABC to the overdraft without any benefits. In the second scenario HUF has availed loan and passed to karta at marginal rate of interest.ABC interest payment willbe Interest on Housing Loan for ABC, HUF interest receipts from ABC will be income but can set off against the interest payment to bank overdraft as expenses incurred for earning that income. No TDS is required by ABC as he is salaried.

Additional question on this thread- in 2nd scenario which ITR will be applicable for HUF (income from bank interest & loan interest only) and in which section of ITR will HUF be allowed to offset the overdraft interest paid to bank as expenses?