IF you give a home loan to a relative, can he claim a tax benefit on it? Also, can you give the loan amount to the builder directly?
wealth reader Siddharth, who plans to give a loan to his brother, has this query.
My brother is planning to buy a home. I have decided to give him an interest free loan for the purchase. I have the following questions:
- Can I issue a demand note in favour of the builder, on behalf of my brother?
- Should I draft the loan agreement?
- Can my brother get a tax benefit if he repays the loan to me in Equated Monthly Instalments (EMIs)?
-- Siddharth
Yes, you can issue a demand note in favour of the builder, on behalf of your brother. You can draft a loan agreement based on this arrangement.
| A demand note is an instrument on which the principal amount of the loan has to be paid when it is presented. It is useful when you want to give a loan where there is no fixed term of repayment. This gives flexibility to the borrower as well. |
Since this is an interest free loan, the tax rebate on interest repaid on the home loan is not relevant here.
Also, if a relative gives the loan, the principal repaid on such loan does not qualify for the tax break under Section 80C.
Hence, your brother won't be able to claim any tax benefits for the funds you lend him.
Read:
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Give your wife a loan; save tax
Photograph: Sean Gallup/Getty Images
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