How to Claim Tax Benefits on Joint Home Loans?

The purchase of property is a major investment decision for many. The affordability factor influences the size, location and financing structure of your dream house. To enhance your home loan eligibility, avail tax benefits and to enable you to buy a larger home in a preferred location, it is prudent to opt for a joint housing loan. In most cases, this option is utilized by an individual and their spouse. Let’s take a look at the tax benefits on joint home loan application:

Tax Provisions

India’s income tax laws permit exemptions in case of loans taken to acquire a home, subject to certain conditions. Under section 24 of the Income Tax Act, 1961, there is a deduction available on the interest component of home loans. Under section 80C of the Act, there is a deduction of up to Rs. 1.5 lakhs towards principal repayment. Additionally, as per Section 26, an individual is taxed on income derived from a jointly-owned property according to the ratio of ownership.

Eligibility Criteria to Avail Tax Benefit

One of the fundamental conditions to claim the tax benefit is that one should be both a co-borrower of the loan and a co-owner of the property under consideration. The property should be bought in both names, but the tax benefit would be claimed individually as per the ascertainable share of ownership.

Claim Amount Allowed

There are several scenarios that emerge in case of satisfying the above criteria of both co-borrower and co-owner simultaneously. The share one has in a house/property is fixed at the time of acquisition of the home by way of amount contributed towards down payment and share in the loan.

However, it is also possible that one’s share in the loan is not in the same proportion as the ownership in the real estate property.

By applying for a joint home loan, both applicants can enjoy the tax deductions individually. This is only possible so long as the co-applicants are also co-owners and they are both making active contributions towards repaying the loan.

Let’s take a look and summarize the various tax benefits permissible under the Income Tax Act, 1961:

1. Under Section 80C, a maximum of deduction of Rs. 1.5 lakhs is permissible on the EMIs that are used to repay the principal amount.
2. Under Section 24, payments made towards the interest amount is deductible up to a maximum amount of Rs. 2 lakhs. This cap/limit is only considered if the house is used by the owner.

If the house is being rented out, then there is no cap on the maximum amount that is tax deductible.

For joint applications, each co-applicant can avail of these benefits as an individual. This means that the benefits enjoyed by co-applicants is much higher than the benefits that individual loan applicants get. However, it’s important to note that each co-applicant can only get tax benefits in proportion to their contribution towards the repayment of the home loan. This is why, it is important for co-applicants to decide what kind of tax benefits they’re hoping to enjoy before filling out the loan application and deciding the loan repayment proportions.

Of course, it’s imperative that individuals read the fine print and educate themselves about all the conditions attached to the income tax laws. In case of a paucity of funds, other co-borrowers can temporarily gift or transfer funds, so as to ensure the loan repayment ratio stays constant throughout the tenure of borrowing. It is recommended to clearly document the individual proportions by way of a Memorandum of Understanding (MoU) to avoid any future misunderstandings. This would also act as a deterrent against any possible future violations of the Income Tax laws by way of over claiming tax benefits. Also read various tax benefit on personal loan only at Finserv MARKETS.

Repayment of Joint Home Loan

Many couples opt for a joint home loan, as this can increase their joint home loan eligibility. For joint home loan interest tax exemption, there’s considerable confusion, about who can claim the home loan benefit and how much tax benefit can be claimed, with respect to joint home loans. A basic condition for housing loan interest exemption for joint owners is that you should be a co-borrower of the loan, as well as a joint owner of the property. Unless you satisfy this basic condition, you cannot claim the tax benefits on a home loan.

Each co-borrower of the loan can provide the ECS mandate of his/her bank account for the home loan repayment. For easy administration, you can choose to give ECS (Electronic Clearance Service) mandate from the bank account of the first applicant, and the second applicant can repay the same to the first applicant. Irrespective of ECS mandate or advance cheques given, kindly be informed that it is the responsibility of each applicant to repay the loan amount.

Now that you know everything about joint home loans, apply for a Bajaj Finserv Home Loan with Finserv MARKETS today and convert your dream of owning a home into reality!