Rising realty prices have gone borrowers stressed for money still to get together the down-payment requirement. If you have resorted to a personal loan to bridge the gap between home loan and down-payment, then there is a twinkle of expectation in terms of a tax benefit.
Typically the interest paid on personal loan taken for consumption purposes is not available for deduction. But the end use of the fund substance and not its source. Under the Income Tax Act, as per Section 24 (b) income from house property is computed after deducting the interest paid on borrowed capital, using which the property has been acquire, constructed, repaired, changed or reconstructed.
So the Act per does not differentiate on the type of loan – whether home or personal loan – used to meet the necessities of purchasing or refurbishing a property.
The principal sum repaid on the personal loan cannot be claimed for inference if not the loan was taken from a bank or other agreed lender. However, the interest amount paid per annum for a personal loan taken to obtain, renew, repair or reconstruct a house property can be claimed for deduction.
For self-occupied property interest amount up to Rs 1.5 lakh can be claimed, while there is no such maximum applicable if the taxpayer has purchased a second property, which is let out.
Note that the interest segment cannot be claimed as a tax deduction if the property purchased is in the construction stage.
Also, defend the bills as one would have to show that the borrowed figure was utilized to pay for the home or home maintenance to maintain the deduction.
Finheal is writing blogs and articles on financial background.