What are the income tax implications for a legatee when he/she finally receives property in the case where the testator and the legatee are not relatives under the Income Tax Act, 1961?
Jacob Zachariah
As per Section 56(2) of the Income Tax Act, 1961, any sum of money or property received under a will or by way of inheritance is totally exempt from tax. In the above case, it is not necessary for the legatee to be a relative. As long as the property has been given by the testator, there will no tax impact on the property received by the legatee.
— Is the repayment as per the proportion of loan eligibility based on our present income? Say in our case, I have to contribute 60 per cent and my wife 40 per cent in an escrow account.
— Will the tax benefits on repayment of principal and interest also be in the same proportion?
— Once the proportion is decided, can this be modified in between, or will it be the same till closure of the loan account? It will be difficult for me to service the loan at the same fixed proportion after I retire.
—My son, who is presently employed with a MNC, would like to contribute for the repayment. Please guide me as to whether it is permitted and can he also claim IT benefit for his repayment. He is not a party to the above home loan.
Ashok Malagikar
As per the tax laws, the owner of a house property and borrower of a housing loan must be the same to be eligible for tax benefits. Such tax benefits are in the form of interest deduction under Section 24(b) and deduction for principal repayment under Section 80(C)(xviii) of the Income Tax Act, 1961. If the property is self-occupied, interest on the loan can be claimed as a deduction by both the co-borrowers based on the proportion of the loan subject to a ceiling limit of ₹2,00,000 (for each person). If the property is let out, then the actual interest payable can be claimed as a deduction. Further, the portion of principal repayment would qualify for deduction under 80C up to a limit of ₹1,50,000.
In case of a jointly owned property, generally, the percentage of ownership and share of loan would be the same. For instance, if the share of ownership between joint owners A and B is 60:40, the share in the home loan would also be 60:40. The tax benefits that they would be entitled to would also be in the same proportion. However, if there is variation between the percentage of ownership and share in the home loan, then it may be difficult to get the tax benefit for the variation.
Your son would not be able to claim the tax benefit since he is not party to the loan and also because he doesn’t own the property.