Income tax benefits on joint home loan

by Manikaran Singal on May 21, 2013 Total Views: (3681)

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In the last article, (All about housing loan tax benefits) I have explained the various income tax benefits that a home loan comes with. This article is a part 2 of the series where I will explain as to how one can increase the quantum of income tax benefits by taking a joint home loan and the various advantages and disadvantages of taking joint home loan.

As far as basic tax benefits are concerned it is same in every home loan like tax benefit under section 80c of principal payment and tax benefit under section 24 of interest payment. But the treatment and applicability of these benefits differs in joint home loan and loan for second home.

joint home loan

What is joint home loan?

 

A home loan where there is more than one borrower termed as joint home loan. These co borrowers can be spouses, parents, children etc.  Co borrowers in joint home loan have to be in blood relation.  No two friends can be co borrowers. In fact banks sometimes avoid giving loan to siblings unless they are co-owners in the property. This also happens in the case where loan is taken with parents as co borrowers.  It is only in the case of spouses where banks don’t demand the co ownership on the said property of co borrowers.

Having a joint home loan is advantageous when both the co borrowers are tax payers. But do keep in mind that to claim income tax benefits in joint home loan all the co borrowers should be the co-owners . Tax benefits can be claimed in the same ratio as the loan taken by co owners.

A co-owner who is not a co borrower is not entitled to income tax benefits. Similarly a co borrower who is not a co-owner cannot claim tax benefits. Below are few examples which will make this concept clear.

Flat value – Rs 75 lakhs

Loan amount – Rs 60 lakh

EMI for 20 years @ 10% p.a (reducing) – Rs  57901/- p.m

joint home loan 1

(Please note that from FY 2014-15 , Section 80C benefit has been raised to Rs 1.5 lakh and Section 24 benefit has been raised to Rs 2 lakh, as per finance bill 2014)

Case 1 – Husband (H) and Wife (W), both are working and tax payers. H purchases a flat in his own name and to manage the burden of EMI, takes home loan with W as a co borrower. In this case though W is the co-borrower and contributes in the EMI, still she would not be eligible to claim any tax benefit u/s 80C or section 24. i.e. in all years only H can claim up to Rs 1.50 lakh in interest payment and 100% of principal or Rs 1 lakh whichever is less.

Case 2 -   H and W, both purchases a house with co ownership of 50:50 and also took home loan jointly in the same proportion. In this case both H and W can claim the income tax benefit of Section 80C and section 24 in equal proportion. i.e The complete interest payment and principal will be divided equally in H &W and both can claim separately Rs 1.50 lakh u/s 24 and Rs 1 lakh or 50% of principal whichever is less

Case 3 – H and W both purchase a house with a co ownership of 75:25 and also took home loan jointly in the ratio of 50:50. In this case both H and W can claim income tax benefit of section 80C and Section 24 in the ratio of borrowing. i.e The interest and principal payment will be divided in the ratio of 50:50 and both H&W can claim income tax benefit in this ratio only, up to the maximum limit allowed.

Please note that in all the above cases the tax benefits that have discussed are on self-occupied house. In case of let out or deemed to be let out house ,No principal payment but 100% of interest payment can be claimed under section 24 by both the co owners in the ratio of their borrowing.

Advantages of having a Joint home loan

  1. One major advantage is the income tax benefit that gets divided in co-owners.
  2. Second advantage is the increases in chances of getting loan and also increase in the loan eligibility.

Disadvantages of having Joint home loan

1. As explained in the article (housing loan tax benefits), that self-occupied property is the one which is occupied by the owner for self-residence, and if there’s any other property purchased will be treated as “Deemed to let out” and taxed accordingly. So in case of joint home ownership, if any of the co-owner purchases some other property in the same city will be treated as “deemed to let out”.

2. If any of the co borrowers has bad credit behaviour due to which repayment of home loan goes irregular, this will affect the credit score of other co borrower too.

3. If due to any dispute, any of the co borrowers refuses to repay the loan, please be warned that as per loan schedule the liability to repay the loan is joint and several on the part of each co borrower. This means all the co borrowers are liable to pay up to as much as all repayments. Lender may also sue both the co applicants to recover the dues.

4. We all are emotional beings. Under the lure of getting access to high credit eligibility which may help in buying a big house, we tend to forget how the EMI burden will going to affect the other goals. (Also Read: Brace yourself for house purchase)

Though Banks provides loans to spouses with no compulsion on having co ownership, it is advisable for both spouses to have some ownership. Before becoming a co applicant make sure that you have some percentage of ownership in the property. Also, if you are co borrower, you could perhaps draw up and sign an agreement with your spouse on splitting the liability. This is to avoid any dispute in future.

Hope you have understood that where joint home loan brings income tax benefits along with, it has to be used with caution and proper financial planning, to tackle any issue later in life.

Do share your views on Income tax and other benefits on joint home loan. What do you think, is it advisable to have joint home loan?

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{ 30 comments… read them below or add one }

Annapurna May 25, 2013 at 5:34 am

Nice article. Another advantage of having a co-applicant in a home loan is that if the property is jointly held, there are lesser disputes over property and fewer succession issues too, on the death of the owner.

Reply

Alok September 3, 2013 at 7:05 am

Please explain another case. The house is in joint name of H & W but no share is specified in document. So I assume it should be 50:50. But the loan repayment is in the ratio of 70:30 (H:W) based on their earning capacity. The EMIs are going from their separate account in 70:30 ratio every month.
Can they take tax benefit in ratio of 70:30 or it has to be 50:50? Moreover, in case of any earning from the house (rental), will it be 50:50 or 70:30 added to their income? Please note again that share in property is 50:50 but loan repayment is 70:30.

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Manikaran Singal September 9, 2013 at 6:06 am

Alok, you will get the tax benefit only in the ratio of ownership share. Even income will be divided accordinly.

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Nilesh October 11, 2013 at 12:52 pm

Dear Sir,

What if the house is owned by the Husband (Single Owner) and Wife is only Co-borrower (not co-owner) in the loan (To increase the loan eligibility only) in the following cases,

1. If Husbund is paying full EMI, will Husband be eligible for the full deduction u/s 80 C for the total repayment made by him, will Husband be eligible for the full deduction u/s 24 for the total interest payment made by him ? as he is the sole owner and sole repayer of the EMI (Principal + Interest)
2. will there be any amount not eligible for tax deduction for the payment made by the husband?

I try to get resolve my query of situation where wife is added only for the increasing loan eligibility, wife is not the co-owner as well as not paying a single rupee for the loan+Interest repayment.

Pl. help what would be the tax treatment.

Is any agreement of the repayment liability with the wife has to be made for claiming total payment as tax deduction in the hands of husband.

Reply

Alok October 14, 2013 at 7:20 am

@ Nilesh,
As husband is the sole owner of the house, only he is eligible for the tax benefit. Since wife is co borrower, husband has to give a declaration that he is paying full EMI. It would be better that EMI is deducted from husband’s bank account only for the clarity. I am 100% sure on this as my colleagues with similar situation are being benefited with this rule.
If husband and wife both are repaying EMI from separate accounts then only husband will get the tax benefit to the extent of his contribution towards EMI. Wife won’t get any relief for nor being co owner.

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Alok October 14, 2013 at 7:15 am

I do not agree to that. A person who is repaying only 30% of the loan (in my case wife) can not take benefit of 50% for tax purpose. This will be illegal and against the tax laws.

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Ashish gautam February 22, 2014 at 10:20 am

Me and my wife are co owner and co borrower both 50:50 . We share the intrest in same ratio for tax benifit
Is it must to share the EMI BENIFIT.
As I gave my savings > 1 lakh from other sources
Can my wife use 100% of Principal amount benifit? Plz reply soon

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Manikaran Singal February 24, 2014 at 4:46 am

Ashish, if your ratio of borrowing is 50:50 and in bank records you are 50:50 co borrowers then tax benefit will also be divided in the same ratio. As in your case your wife is 50% co owner and also 50% co borrower, so she can claim 50% of principal and interest payment benefit with a total limit of Rs 1 lakh and 1.5 lakh respectively.

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Alok March 7, 2014 at 9:31 am

I would like to clarify that wife can take benefit of 50% principal and 50% of interest but the limits will be 1 lakh and 1.5 lakh for principal and interest for individual. It means that if they are paying high interest (> 3 lakh)and principal (>2 lakh) total, BOTH COMBINED TOGETHER will have benefit of 2 lakh on principal and 3 lakh on interest.

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mayur March 5, 2014 at 5:49 pm

Hello
Very nice Article , thank you
I have one query, does EMI should go from two different account( i.e husband and Wife) towards loan account? to get the tax benefit for both?
or we can pay EMI from any one account ( for eg husband acc) and based on the loan agreement ratio we can claim the tax ?

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Alok March 7, 2014 at 9:35 am

You can pay from single account. But make sure that accounts are clear and there is a proof that one coowner is paying his/her contribution to the other. In case IT inquiry is done you will have sufficient proof. Or you can open a separate account and deposit your respective contribution in the same. EMI can be paid through this new account. Essence is that there should be no ambiguity.

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krish April 30, 2014 at 7:45 am

Firstly, I want to thank you fo rthe articles that you posted, on the housing loan and related matter. I would also like to ask a questions here, which if you may reply will be great.
If I want to apply for housing loan jointly with my wife, Can I use her name as the first name, and mine as the second name, even though I will be paying the EMI amount completely from my salary? My wife is currently housewife, and a non-tax-payer (very nominal income from savings). If it is possible, is there any additional documentation required to make this effective?

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Manikaran Singal May 9, 2014 at 9:07 am

Krish, i don’t think there would be any problem in this. Its better if you check with the bank where you will apply loan to.

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Yuvaraj R July 10, 2014 at 9:25 am

Sir

I and my wife are co-owner and co-borrower. For the loan amount of Rs.23 lakhs I pay the EMI through my bank account. My wife pays repay the EMI for 12 lakhs. The registration of the property will be done in three months. I want to claim the EMI portion for 23 lakhs. What is the percentage of ownership should be there for me

I started the EMI three years back, can I claim the Interest portion alone for the next five year (Since EMI includes principel)

We are planning to let out the property since it is 35 from KM from my work place and falls in different district. Whether eligible to claim the principel amount from this years. Since any condition on principel amount in 80c for Joint borrowing

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raksha iyer December 4, 2014 at 3:27 am

Sir , we are having a property in which me and my husband is owner.i am a housewife and he is salaried.can I be the first borrower and applicant?? For joint home loan women benefit??please answer
thanks

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Manikaran Singal December 8, 2014 at 9:04 am

You can be one of the borrower but being a housewife, m not sure if a bank allows you to be the first borrower or not. Though it doesn’t make any difference in the loan sanction, but still i think it depends on the respective bank’s policies.

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shakeel ahmad naquib December 6, 2014 at 11:42 am

my wife is the owner of property and i am co brrower should i get benefit under income tax act

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Manikaran Singal December 8, 2014 at 9:05 am

Shakeel, to claim the income tax benefit on housing loan emis, one needs to be owner or one of the co owners of the property .

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Praveen Gupta December 21, 2014 at 9:33 am

Can my father-in-law be the joint owner and co-borrower in a property? Would banks give a loan in such a case now? What impact would it have on income tax benefits.

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Manikaran Singal December 24, 2014 at 8:06 am

Normally lenders have defined the relationship for co borrowing which generally are the close blood relatives like parent, child or married couples. I don’t think your father in law be allowed to be a co borrower along with you.

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Pranav January 7, 2015 at 6:42 pm

Hi,
I have a flat on my name and my wife’s name, Last year I have claimed interest and principal in 50:50 ratio.
But for the current financial year my wife is on leave, so she did not contribute to the EMI. So can i take 100% benefit of the interest and principal.

THanks

Reply

Manikaran Singal January 21, 2015 at 10:59 am

I assume that as you have claimed 50:50 Interest principal, last year then in bank loan agreement you are co borrower of 50:50 loan, and thus liable to pay each of your share.
If this is the situation then as per my understanding you won’t be able to claim 100% benefit this year.

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Pranav January 22, 2015 at 9:57 am

Hi Manikaran,
The house is at present is put on rent, and my wife is on Leave without pay for whole of the year, so she did not contribute towards monthly EMI.
But last year both of us were working hence we claimed 50:50 as the ratio. In the bank loan agreement it is nowhere written about the ratio.
Can’t we change this ration during tenure of the loan because of the change income of one of the co-borrower. My employer has no issues in accepting the the 100% as the ratio, as per them this declaration is enough that the spouse in not claiming any thing. Should I go ahead with this, i am worried about if by any chance scrutiny happens, will my explanation be valid in front of the tax authorities.

Thanks

Reply

Manikaran Singal January 29, 2015 at 11:28 am

See Pranav, as far as my understanding goes, tax benefit can be claimed only in the ratio of borrowing, as your borrowing defines how much you have to pay back. If there’s no ratio defined among borrowers then they should claim in the ratio of income which was at the time of taking loan.
Now in your case since your wife has left the job and you are the one who’s paying the complete EMI, i don’t think you can claim benefit accrued to her. Your employer may give you this benefit on basis of declaration but legally this is not possible.
You may talk to bank , if they help in any way…i don’t know how.

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Alok March 30, 2015 at 12:04 pm

@Pranav. Please note that you can take benefit of Income tax based on the loan repayment made individually by you and your wife. This definitely can change based on the income for that year. Hence you can pay individually the full amount in case your wife is at home. Only thing is that you have to give a declaration for the same to your employer. They may object to it but as per rules this is possible and you can claim if not provided by employer.

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Sada January 12, 2015 at 5:40 pm

Hi,

Have a Flat Co-owned with wife which is let out for rent. Please advise if the P & I as well as Rent should be declared @ 50: 50.
Principal 43K P.A , Interest 3.00L P.A . Rent received 1.5 L P.A.

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Manikaran Singal January 20, 2015 at 5:04 am

If your wife is co owner as well as co borrower then yes you can declare it 50:50. For convenience purpose, better to have a joint account and receive rent in that and also pay EMI from the same account.

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Sada January 12, 2015 at 5:41 pm

Both of us are Salaried and are assessees

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Shailesh Dubey March 27, 2015 at 11:57 am

Dear Sir,

I am co-owner of a flat with my wife. House in our joint name and in bank Loan record is also show us as joint owner of the house. The Interest certificate issued by bank is also shows us as joint borrower but All EMIs (Principal & Interest) are paid by me only. Will I eligible for 100% rebate as my wife doesn’t claim any rebate as she is home maker and doesn’t have any source of income? Please guide.

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Alok March 30, 2015 at 12:08 pm

Yes. You can definitely pay the complete amount and take rebate yourself. Give a declaration to your employer for the same. I have done the same where me, my father and my wife were the co borrowers. But father being a pensioner was not able to serve the loan. Wife was not a co owner and was added to enhance the loan eligibility, so could not take rebate. Hence, I took the rebate on complete amount.

Reply

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