Chirag (General Manager) (44 Points)
25 December 2013Hello,
Mr. A is son of Mr. B. Mr. B dies and under will gives Rs. 10 laks to Mr. A's HUF.
Mr. A has housing loan .. He plans to repay the housing loan by taking loan from A's HUF.
Mr. A plans to pay only interest to Mr. A's HUF and principal would be paid later.
Can Mr. A claims Interest paid to HUF u/s 24(b) ? Is payment of interest mendetory to claim deduction ?
Thanks
Mihir
(Wealth Manager)
(5293 Points)
Replied 25 December 2013
It is unlikely that this deduction shall be allowed. You are planning to repay the home loan by taking a loan from HUF. The loan agreement with the HUF is obviously going to be biased in your favor because it is more or less the same party. And the repayment made to the HUF cannot be considered as a home loan, and interest deduction cannot be availed.
I may be wrong. Wait for more replies.
VIKASH KUMAR JAIN
(Audit Executive)
(711 Points)
Replied 25 December 2013
PARV
(TAX ASSISTANT.)
(202 Points)
Replied 25 December 2013
as per mihir sir that "repayment made to HUF can not be considered as home loan & interest deduction can not be allowed"
MIHIR SIR is right.
loan from HUF will become a personal loan u/s 269S/T.
Chirag
(General Manager)
(44 Points)
Replied 26 December 2013
Thanks Mihir / Parv / Vikas.
I still have my doubts as housing loan can be taken from any one... for arguement sake if interest paid on loan taken from relatieve is allowed in IT and HUF is seperate entity why housing loan taken from HUF will not be allowed as deduction.
Regards/Chirag
PARV
(TAX ASSISTANT.)
(202 Points)
Replied 26 December 2013
sorry chirag
the following is correct answer
Circular : No. 28 [F. No. 8/8/69-IT(A-I)], dated 20-8-1969.
213. Fresh loan raised to repay original loan taken for constructing/ buying property - Whether interest payable on second loan would also be admissible as a deduction under clause (vi) of sub-section (1)
1. Section 24(1)(vi) provides that where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital shall be allowed as an admissible deduction in the computation of income from the said property.
2. A question has been raised whether in a case where a fresh loan has been raised to repay the original loan taken for the above purpose, the interest payable in respect of the second loan would also be admissible as a deduction under section 24(1)(vi).
3. The matter has been considered by the Board and it has been decided that if the second borrowing has really been used merely to repay the original loan and this fact is proved to the satisfaction of the Income-tax Officer, the interest paid on the second loan would also be allowed as a deduction under section 24(1)(vi).
Mihir
(Wealth Manager)
(5293 Points)
Replied 26 December 2013
Yes, loan to repay existing loan is allowed but has the IT dept allowed such home loan from HUF in the past?
There have been cases where a karta borrowed money from HUF for starting a business and paid interest to the HUF. IT Dept objected that this is a way to evade tax by using the interest as deductible expenses in business.
You may try but if the IT dept objects, they may reverse all the deductions, and you may either follow their directions or go for CIT (appeal). It will be your choice.
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