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Treatment of Intt on loan for margin money for flat

Raman (Salaried) (78 Points)

19 December 2007

Hi,

Is interest on loan taken for payment of margin money for purchase of flat also allowed as deduction in case of self occupied or let out property. For e.g

Cost of Flat = 20 lakhs

Home loan = 16 lakhs

Personal Loan for margin money = 4 lakhs

Interest on Home Loan = 1 lakhs for each PY 2007-08 and 2008-09 and on PL = 0.4 lakhs for each PY 2007-08 and PY 2008-09

Possession taken in Feb-08.

What would be interest eligible for deduction if

a) Property is let out

b) Property is not let out.

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4 Replies

K V Subba Rao (Service) (2708 Points)
Replied 19 December 2007

Interest on Personal Loan taken to meet Margin Money also qualifies for computation of Income/Loss from House Property. Interest on Home Loan (Rs 1.00 lac) as well as Interest on Personal Loan (Rs.0.40 lacs) aggregating to Rs 1.40 lacs will be treated as expenditure while computing Income/Loss from House Property. Since total amount of interest is less than Rs 1.50 lacs, there is no differnce in tax treatment whether the house is let out or self occupied

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Raman (Salaried) (78 Points)
Replied 20 December 2007

But few of practicing CA's have told me that only interest on home loan qualifies for deduction within the limit of 1.5 lakhs. Other loans like PL etc though utilized for buying home etc do not qualify for deduction. I am totally confused, can any one through more light on this matter.

K V Subba Rao (Service) (2708 Points)
Replied 20 December 2007

Thiru Raman,

Please study the following extracted by me from https://www.apnaloan.com/taxtips/home-loan-india

(1) The requirement for deduction of interest payable on a loan is only that it should have been taken to acquire or construct a house property. The nomenclature of the loan (whether a business loan or a home loan or even a completely unsecured personal loan) is completely irrelevant for the purpose of claiming deduction under Section 24. The only requirement is that, you must be able to prove that the loan is taken for the purpose of construction or acquisition of a house property

(2) Neither section 24 (which governs the deductibility of the interest portion of the loan repayment) nor section 80C (which governs the deduction available with respect to the principal portion of the loan repayment) requires that the loan must be taken against the security of the house that is acquired by using the loan. The end purpose of the loan is important. As long as the purpose of the loan can clearly be shown as being the acquisition or construction of the house property, the tax benefits are available

In fact while in service, I had purchased one Flat for my self residence and constructed one house for letting out. For both, I took loans from my employer, banks as well as relatives. I claimed interest expenditure on all such loans. Of course, I obtained letters from my employer, banks and also relatives to support my claim for tax benefits.

Very importantly, you should maintain record sufficient enough to prove that you utilised the Personal Loan for purchase of flat. I am sure any practising CA would agree with this provided the problem or issue is clearly explained to him

(Guest)

As per third proviso to SEc.24(b), deduction of any new loan is claimable by the assessee. and Explanation to SEc.24(b), provides the meaning of new loan as any loan to pay any previous loan or interest of the previous loan. as a corollary to this, the interest on loan other than housing is also deductible provided it is used forthe construction or as the case may be, repair ofthe house.