A personal loan to buy a home?

I have been allotted a property in Ghatkopar, Mumbai, at 50% of the prevailing market price.

The catch is that the land belongs to the trust of our community and hence there is no sale deed but a tenancy agreement which would be signed, since the trustees are the managers of the property but not the owners.

I don't think I can take a home loan because they would demand a sale deed.

Does that mean I will have to take a personal loan to fund the property? If yes, then I don't get any tax benefits right?

- Nimish Gondalia

You are right.

Since you are not the owner of the property, you will not be eligible for a home loan to fund the acquisition of this property on a tenancy basis.

As far as tax benefits on the personal loan are concerned, you will not be eligible for them. However, it is not for the reason outlined by you.

The Income Tax Act does not require that you have to take a 'home loan' (a loan which is secured against the property being bought) to avail of the tax benefits.

The only requirement is that the loan is used for acquiring the property.

Thus, even if you take a personal loan and use the loan proceeds to acquire a house property, you will be eligible for tax benefits on the repayment of the personal loan.

In your case, however, the problem is that you are not acquiring the home property. You are only becoming a tenant in the property.

Thus, the personal loan is not a loan taken to acquire a property and hence you will not be eligible for the tax benefits.

The only saving grace can be if your transaction is of the type referred to in Section 269UA (f) -- that you will be deemed to be the owner of the property and hence be eligible for the tax benefits accordingly. To put it very simply, if your lease term exceeds 12 years, you may possibly be able to claim the status of a deemed owner.

Please consult your tax advisor for more details.

To see the other queries answered by Harsh Roongta, read Got a home loan but want to sell? and Want to change your EMI date?

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