Interest on Housing Loans deduction under Income from House Property.

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We all claim deductions up to Rs. 2,00,000/- for interest on housing loan on Self Occupied house property and on a let out property.

Most of us think that this interest should be allowed only if the capital to purchase property is borrowed from Banks and Financial Institution. However we don’t know that that interest on borrowed capital from close relative is also allowed as deduction.

For Example:- If I borrowed amount of Rs. 10 Lac from My brother and paid him interest of Rs. 1 lac @10% p.a.on this principal amount. If this Rs. 10 Lac is used to acquire a house property whose rent income is offered to taxation under Income From House property, then I can claim interest deductions u/s 24(b) even if this money is not borrowed from banks.

However, Please be careful that Sec 80C deductions are allowed on repayment of principal amount borrowed from banks and financial institutions only and not from relatives.

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