Hi, I'm a married woman staying in Delhi with my husband. My father stays in Yavatmal city, Maharashtra and is looking to relocate to Nagpur. For this, he has identified to purchase a residential property (Flat) in Nagpur. However, he is not getting enough home loan tenure from banks because of his old age although he is financially capable to pay the EMI for a 25-30 years old tenure. So he has asked me to apply for the loan in my name for the said Nagpur property since I will easily get the tenure of 25-30 years. Now, As per bank officials, to get benefit of Pradhan Mantri Awaas Yojana, I need to be the sole owner of this property. My father is ok with this. So, since the home loan and property ownership will be in my name, the EMI will also be deducted from my bank account. However, my father, being financially capable has planned to transfer me the EMI on monthly/quarterly basis so that i dont need to bear the EMI load on my finances. Request to guide the best possible approach to handle this transaction so that we are compliant from income tax and any other applicable legal perspective: 1. How will this EMI transfer from him to my account on monthly/quarterly be treated from income tax perspective or any other legal implication, both for me and my father? 2. In near future, he also plans to sell some of his old property to pre-close this home loan (maybe in 1-2 years). So, I assume a lump-sum amount of approx. 35-40 Lakhs will need to be transferred from his account to my account and then paid to the bank to pre-close the loan. How will this be treated? Any better way to handle this 2nd point? 3. Any other clause/point that we should keep in mind while doing this transaction?
1) your father is at liberty to transfer funds to your account for payment of EMI
2) however you would not be eligible to claim tax benefits on repayment of loan as EMI is being paid for by your father
3) transfer of Rs 40 lakhs to your account can be shown by you as gift in your income tax returns
4) consult a local CA
The property belongs to you as you have taken the loan technically. Therefore a separate agreement can be made stating all the details and issues and an agreement to transfer the ownership once he has paid the amount.
Alternatively you may take the money as a gift from him on a monthly/yearly/quarterly basis. That is tax free.
You may transfer the property once the emi is paid.
Or you may jointly buy the property and transfer your share to him after taking the money.
1) If the new Property going to purchase on your name that will be not directly benefit to your father. If you still want to benefit to your father than kindly purchase Property on joint ownership means first name yours and second name your father.
2) it will be easy to close loan in future as well so after selling old property new loan can be adjusted.
1. It can be treated as financial support/gift to you. You can claim the appropriate/permitted tax deduction towards the interest portion of the EMIs paid by you.
2. You shall have to show it as gift amount paid to you by your father.
1. EMI deducted from your account will be admissible expenditure. Transfer of EMI amount from your father's account to your account shall be taxable under income from other sources. EMI amount deducted from your father's account shall be inadmissible expenses.
2. Income to your father by selling the property is chargeable under Income from Capital gains in your father's hands. There will be no taxation liability on you if your father transfers in your bank account as such transaction shall be covered under exemption of transaction between blood relatives. You can take such money and foreclose the loan.
1. Since you are the lone owner of the proeprty as well as the single applicator for home loan, any payment made towards loan interest and loan repayment shall be accounted in your account only.
Your father cannot claim income tax exemption for the EMI amount that he deposits every month to your bank account.
If at all he wants to avail the said exemption he should either be a joint owner or a co-applicant and pay EMI amount directly to the bank towards home loan, upon which he can claim exemption as applicable.
2. He can transfer this amount to your account by executing a gift deed. This gift deed would not attract the gift tax.
3. You can enquire from bank and make him a co-applicant for repayment of loan amount which may solve your current problem.
1. You can get the amount for paying the emi from your father as Gift , and further can claim a rebate over the same.
2. The said sale proceed will be considered as capital gain , and hence taxable.
- Better to take suggestion from a CA
Thanks everyone for your response. As a follow-up confirmation on same query on 2nd point: The lump-sum Rs 35-40 Lakh that he will be transferring to my account will also be treated as non-taxable, is this correct?
This amount transferred to you as gift is not taxable in your hand.
However the income derived out of this amount is taxable.
Rule for income tax on gifts, is that any amount received from specified relatives is totally tax free in the hands of recipient.
Following is the list of relations which are considered as “relatives” for this
So if you want to buy a house and your father/mother/sister/brother etc transfer amount to your bank account, you don’t need to worry about the taxation part, because its a gift from your relatives and you will not have to pay any tax on this amount.
However its a good practice to do the documentation for this, if the amount if pretty big like that of yours. All you need to do is document this transaction on a stamp paper of Rs. 300/- which clearly states that money is transferred by your father into your account for purchase of house and foreclosure of loan and its a gift, and both of you sign the same. In future, if there is any income tax scrutiny, this proof will help you.
it would be non taxable
thanks for your appreciation
1. You shall have to show it as gift.
2. Gift is not I. Taxable.
3. It will be prudent on your part to get an affidavit notarise by your father affirming that he has gifted the said amount top you.