Taxation: Homi Mistry

I have taken a home loan for buying my father's house. I am paying the interest on the loan regularly and claiming it under Section 24. My father passed away recently and the loan is now, in the natural course, due to my mother. Can I draw cheques in her favour and continue to claim the interest paid? If not, what should I do? Also, the income from gifts to the spouse is clubbed with the income of the donor. But, if a husband grants a loan (instead of a gift) to his wife, and the wife invests it in a bank deposit, is the interest clubbed with the husband's income? If not, what should be done to prove it was a loan and not a gift?
Yes to the first question, on the assumption that according to the inheritance laws, the loan is now repayable to your mother, and you can draw cheques in favour of her and continue to claim the interest paid under Section 24, as being done by you. You should keep proper documentation such as a loan agreement or correspondence from your mother about the loan now being payable to her, on the same terms and conditions as was the arrangement with your father.

On the second question, no. The interest will not be clubbed, provided you are able to prove the genuineness of the loan. The best way of proving it is a loan is to charge interest thereon at the market rate (which will be taxable in your hands) and have proper documentation as you would have with a third party. The sooner the loan is repaid, the better it will be.

I have taken a home loan for a house under construction, only for the tax benefits. But I hear I cannot claim for the interest and principal till I get possession of the property. Is that true? Should I not start repaying the loan till I get the possession?
Yes, tax benefits for principal and interest can be claimed only in the year in which the house is completed and onwards. The amount of interest paid for the financial years preceding the year of completion can be claimed in five equal yearly instalments, starting from the year in which the house is completed. However, the principal repaid prior to the financial year in which the house is completed is not deductible.

The writer is a tax partner at Deloitte, Haskins & Sells. The views expressed are his own. Send your queries to yourmoney@bsmail.in