Tax Benefits on Home Loan for Joint Owners

Co-owning a property can be beneficial for married couples the transfer of rights becomes easy, because if one of the partner dies, the surviving spouse automatically becomes the sole owner of the house. And if the couple has taken a home loan jointly, each person can avail of the tax benefits

Joint ownership brings separate problems such as Mine vs Yours. Very few partners have the confidence that the other half will handle the money the way they want. Those who enter a joint ownership should be aware that all partners are liable for all the dealings in an account as a single or joint entity. So joint ownership of financial product should be done only with someone you can trust. Don’t ignore tax concerns and possible legal hassles before opting for these. For example If husband and wife have opened a Fixed Deposit jointly then who pay tax on the interest earned or for joint ownership of house who takes the tax advantage on principal and interest?  Clarity of source of income needed for tax purposes. Or what happens when they get divorced who get what, how much proportion?

There are both benefits and drawbacks associated with joint ownership.The following tax benefits on a joint home loan can be availed by all the joint owners. Subject to certain conditions, which are as under.

Tax benefits on a joint home loan are available to all the joint owners. It’s pertinent to note that ‘ownership’ in the property is a pre-requisite to availing any tax benefits against the property. You may have taken the loan jointly, but unless you are an owner in the property – you may not be entitled to the tax benefits. There have been situations where the property is owned by a parent and the parent & child together take up a loan which is paid off only by the child. In such a case the child, who is not a co-owner is devoid of the tax benefits on the home loan. Therefore to be able to claim the tax benefits on the property you must be a owner or co-owner in the property . In case of joint home loan all the co-borrowers of the loan can avail the deduction towards the repayment of principal amount along with interest on loan. This tax benefits will be proportionate to their share in the home loan.

For a self occupied property – Each co-owner, who is also a co-applicant in the loan, can claim a maximum deduction Rs 2,00,000 for interest on the home loan in their Income Tax Return. The total interest paid on the loan is allocated to the owners in the ratio of their ownership. Each owner/borrower can claim interest benefit upto a maximum of Rs 2,00,000. The total interest claimed by the owners/borrowers cannot exceed the total interest paid for the loan.

For a rented property – For a property which is given on rent the entire interest can be claimed as a deduction. In the above example, (the only difference in case of rented property is that there is no cap in the max interest that can be claimed by each)

Section 80C of the income tax act 1961 allows an assessee to avail the benefit of deduction towards the repayment of principal amount. Each co-owner, can claim a deduction of maximum Rs 1,50,000 towards repayment of principal under section 80C.  This is within the overall limit of Rs 1,50,000 of Section 80C.

You can avail the deduction towards interest on loan paid under section 24 of the act. As a family you will be able to take a larger tax benefit against the interest paid on the home loan when the property is jointly owned and your interest outgo is more than Rs 2,00,000 per annum.

It’s important to note that the tax benefit of both the deduction on home loan interest and principal repayment under section 80C can only be claimed once the construction of the property is complete. These benefits are not available for a under construction property.

  1. There may be a situation where you are paying the entire loan installment and the co-borrower is not contributing any payments. In such a case, you may claim the entire interest as a deduction in your Income Tax Return.
  2. Stamp duty and registration charges of a property can also be claimed by the joint owners.

As a measure of tax planning, Since all the co-owners are allowed to have the tax benefit it is advisable to split their share of the loan accordingly so that person having maximum tax slab will be allocated majority amount of the loan which makes it possible to avail optimum tax benefit.

Points to be noted about tax benefits on home loan

Home loan borrowers are entitled to tax benefits under Section 80C and Section 24 of the Income Tax Act. These can be claimed by the property’s owner.

In the case of co-owners, all are entitled to tax benefits provided they are co-borrowers for the home loan too. The limit applies to each co-owner.

A co-owner, who is not a co-borrower, is not entitled to tax benefits. Similarly, a co-borrower, who is not a co-owner, cannot claim benefits.

Housing companies usually require all co-owners to be joint borrowers to a home loan. Loan providers specify who can be a joint borrower for a home loan.

The tax benefit is shared by each joint owner in proportion to his share in the home loan. It’s important to establish the share for each co-borrower to claim tax benefits.

The certificate issued by the housing loan company, showing the split between principal and interest for the EMIs paid, is required for claiming tax benefits.

Frequently Asked Questions (FAQ):

1.How the Co-owners can claim interest paid on housing loans ?

Let’s understand Ramesh and his father bought a house on loan and paid Rs 4,50,000 in interest. They have a 50:50 share in the property. Ramesh can claim Rs 2,00,000 in his tax return, his father can also claim Rs 2,00,000.

  1. What are Income tax benefits of taking  and repaying a housing loan under EMI Plan?

You will be eligible to claim both the interest and principal components of your repayment during the year. Interest can be claimed as a deduction under Section 24. You can claim up to Rs. 200,000 (Rs. 150000/- up to A.Y. 2014-15) or the actual interest repaid whichever is lower. (You can claim this interest only when you are in possession of the house) . Principal can be claimed up to the maximum of Rs. 150,000  (Rs. 100000/- up to A.Y. 2014-15) under Section 80C. This is subject to the maximum level of Rs 150,000 (Rs. 100000/- up to A.Y. 2014-15) across all 80C investments.

You will need to show the statement provided by the lender showing the repayment for the year as well as the interest & principal components of the same.

  1. If I buy a house jointly with my wife and take a joint home loan, Can we both claim income tax deduction?

if your wife is working and has a separate source of income, both of you can claim separate deductions in your income tax returns.The repayment of principal amount of the loan can be claimed as a deduction under section 80C up to a maximum amount of Rs. 1.50 (Rs. 1 Lakh  up to A.Y. 2014-15)  lakh individually by each co-owner. In cases where the house is owned by more than one person and is also self-occupied by each co-owner, each co-owner shall be entitled to the deduction individually on account of interest on borrowed money up to a maximum amount of Rs. 2  lakh (Rs. 1.50 Lakh  up to A.Y. 2014-15). If the house is given on rent, there is no restriction on this amount. Both co-owners can claim deductions in the ratio of ownership.

  1. My husband and I have jointly taken a home loan. He pays 75 percent of the EMI. What will be our individual tax benefits?

As you have taken a joint home loan, both of you are eligible for tax exemption for your share of the EMI paid. For claiming income tax deduction, the EMI amount is divided into the principal and interest components. The repayment of the principal amount of loan is claimed as a deduction under section 80C of the Income Tax Act up to a maximum amount of Rs. 1.50 (Rs. 1 Lakh  up to A.Y. 2014-15) lakh individually by each co-owner. The repayment of the interest portion of the EMI is also allowed as a deduction under section 24 of the Act, which is given under the head “income from house property”. In case you are living in the house for which home loan is taken, both of you shall be entitled to deduction in the ratio (3:1) on account of interest on borrowed money up to a maximum of Rs. 2 lakh individually (Rs. 1.50 Lakh  up to A.Y. 2014-15). If the house is given on rent, there is no restriction on this amount and both co-owners can claim deduction in the ratio of ownership- 3:1 in your case.

  1. Plan to buy a house by raising loans from friends and relatives. Will I be eligible for tax benefit from all sources?

Interest payment to friends and relatives can be claimed u/s 24 but only against a certificate received from them. In the absence of the certificate, you would not be eligible for the deduction. The recipient of interest income who issues the certificate is liable to pay tax on the interest income that he receives. As far as the principal payments are concerned, they would not qualify for tax benefit as loans only from notified institutions and banks are eligible for such deductions.

  1. What are the tax benefits that I can avail of for repaying a home loan ?

You will be eligible to claim both the interest and principal components of your repayment during the year. Interest can be claimed as a deduction under Section 24. You can claim up to Rs. 200,000  (Rs. 1.50 Lakh  up to A.Y. 2014-15) or the actual interest repaid whichever is lower. (You can claim this interest only when you are in possession of the house). Principal can be claimed up to the maximum of Rs. 150,000  (Rs. 1 Lakh  up to A.Y. 2014-15) under Section 80C. This is subject to the maximum level of Rs 150,000 (Rs. 1 Lakh  up to A.Y. 2014-15) across all 80C investments. You will need to show the statement provided by the lender showing the repayment for the year as well as the interest & principal components of the same.

      7 .  Can I take advantage of tax benefits from a home loan as well as claim House Rent Allowance (HRA) ?

If you took a home loan and are still living in a rented place, you will be entitled to: (1) Tax benefit on principal repayment under Section 80C (2) Tax benefit on interest payment under Section 24 (3) HRA benefit. you can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete, the HRA benefit stops. If you took a home loan, got possession of the house, have rented it out and stay in a rented accommodation, you will be entitled to all the three benefits mentioned above. However, in this case, the rent you receive would be considered as your taxable income.

  1. I have a home loan in which I am a co-applicant. However, the total EMI amount is paid by me. What is the total income tax exemption that I can avail of ?

Yes, you can claim income tax exemption if you are a co applicant in a housing loan as long as you are also the owner or co owner of the property in question. If you are only person repaying the loan, you can claim the entire tax benefit for yourself (provided you are an owner or co-owner). You should enter into a simple agreement with the other borrowers stating that you will be repaying the entire loan. If you are paying part of the EMI, you will get tax benefits in the proportion to your share in the loan.

  1. I have two housing loans on two different properties. Can I get tax rebate under sec 80 C of both the loans?

Yes, you can get the 80C benefit on both loans. However, the total amount that you will be entitled to will be a total of Rs 150,000 (Rs. 1 Lakh  up to A.Y. 2014-15) across both the homes. The interest paid on a home loan is not directly deductible from your salary income for either of your flat loans. Income from house property will be calculated for each flat you own. If  either of theses calculations shows a loss, this loss can be set off against your income from other heads. As for Section 24 deduction, on yourself occupied house you can take advantage of interest payments up to Rs.2,00,000  (Rs. 1.50  Lakh  up to A.Y. 2014-15).  For the other property, you can claim actual interest repaid, there is no limit for the same.

  1. I live in one city in my own house. I took a housing loan to fund the purchase of an under-construction flat in another city. It is expected to be completed in FY 15. I haven’t claimed any tax benefit so far. What happens to the loan installments I have paid so far? Can they also be claimed for tax benefit?

According to the Income-tax Act, 1961, where the property has been acquired or constructed with borrowed capital, the interest payable on such capital for the period prior to the year in which the property has been acquired shall be allowed as deduction in five equal installments beginning from the year in which the property is acquired. Thus, the interest included in the loan installment paid by you during the construction period shall be eligible for deduction from the year in which the flat is acquired/construction is completed. The principal amount of the loan repaid till date shall not be available as a deduction under section 80C till the time the construction of the flat gets completed. Once the flat is completed and the possession is handed over to you, you will be eligible to claim deduction for interest paid on the loan under section 24(b) and principal amount of loan under section 80C. The total amount of deduction available under section 80C shall be limited to Rs. 1.50 lakh (Rs. 1 Lakh  up to A.Y. 2014-15). Thus, as of now, you are not eligible for any tax benefit on such loan repayments.

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