No 80C tax break on principal repayment to parents

Deduction on interest on home loan can be availed from parents provided the payment is bona fide.
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First Published: Wed, Sep 26 2012. 07 17 PM IST
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Is interest payable to my parents from whom I have partly borrowed for my first and second houses can be claimed under section 24?
—Nitin
As per section 24 of the Income-tax Act, you could avail deduction in respect of interest payment on housing loan availed from your parents provided the payment is bona fide and you obtain a certificate from the lender—your parents—that such interest is payable by you to them in respect of the loan taken for acquisition or construction of property.
The quantum of deduction towards interest would depend upon whether the house is a self-occupied property (SOP) or a let-out property (LOP). Assuming that you availed the housing loan on or after 1 April 1999 for acquisition and/or construction of the houses, you could avail a deduction up to Rs.1.5 lakh per fiscal for one SOP. In case the house properties are let out, the entire interest can be availed as deduction. Further, where both the properties are lying vacant, any one house at your discretion could be treated as SOP and the other property shall be considered as “deemed to be let out property”. Accordingly, you need to compute the annual value of the house by considering the deemed rental value and claiming appropriate deductions and offer the same to tax. You can claim entire interest as deduction against deemed rental income.
You shall not be entitled to deduction under section 80C of the Act on principal repayment in respect of a housing loan taken from your parents.
Further, the loss, if any, arising in a fiscal from house property could be offset against the income from salary/house property/other income, if any, earned during the said fiscal, subject to the provisions of the Act.
I am a salaried individual and have some interest income. I have also invested in a friend’s business from which I receive quarterly payouts. Please advise on income-tax returns.
—Mahesh Jha
Your payouts from investment in friend’s business may either be taxable as “business income” or “income from other sources” depending upon the intent/activities carried out by you.
Assuming that you have invested in a friend’s business with the motive of earning regular income in the form of interest and not with an intention to carry out any business activities and sharing profits, then the payouts should be categorized as income from other sources. Accordingly, you should use ITR-1 since you have only salary and interest income.
If the investment is made with the motive to share the profit in the business in the form of quarterly payouts, then the income would be categorized as business income and you would be required to file ITR-IV or ITR -4S depending upon the nature of the business.
Queries and views at mintmoney@livemint.com
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First Published: Wed, Sep 26 2012. 07 17 PM IST
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