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How to claim tax benefits on joint home loans?

How to claim tax benefits on joint home loans?
 

How to claim tax benefits on joint home loans?

A home loan is a long-term commitment. Since the loan amount is high, there are certain tax laws in place that offer some respite to borrowers repaying this high-value loan. Also, since this is a long-term loan, it is recommended that you apply for it jointly. Opting for a joint home loan also helps increase your loan eligibility. You can apply for the home loan jointly with a close, immediate family member such as your spouse, parents or sons. You just need to ensure that the joint applicant is employed and qualifies for tax exemptions. Here’s all you need to know about claiming tax benefits on home loan for joint owners.

How to claim tax benefits on joint home loans?

If you take out a home loan, you become eligible for tax deduction on both, the principal loan amount and the interest rate component of the loan. You can get a tax reduction of ₹150,000/- per annum on the principal loan repayment amount under Section 80C, whereas you become eligible for tax reduction of ₹200,000/- per annum under Section 24(b) of the Income Tax Act. Let’s take a look at the main aspects of joint registrations of property benefits

Co-borrowers & co-owners of a loaned property

Section 26 of the IT Act clearly defines the guidelines for taxation of an individual’s share in case of jointly owned properties. In case of joint ownership of a property, both applicants are taxed as individuals with respect to their share in a given property. As such, if your share in a joint property is ascertainable you are not taxed as an Association of persons or Body of Individual.

The basic requirement for claiming the tax benefits that come with joint home loans is that you need to be both, the joint owner as well as the co-borrower of the loan. Unless this basic condition is satisfied, you cannot claim joint house loan tax benefit. In several cases, an immediate member of the family (parent, spouse or son) is added only with the intention of enhancing the loan eligibility, but the co-applicant may not have any share in the purchased property. In such cases where the co-borrower is not a joint owner, tax benefits may not be claimed. This is one of the main reasons why properties may be purchased jointly but tax benefits have to be claimed individually.

Ratio for claiming tax benefits on home loans

In certain cases, one may be serving as both, the joint owner as well as the co-borrower of the home loan, but you may not be servicing the loan. In such cases, you cannot claim the home loan co-applicant tax benefit. This is because the tax laws with regards to home loans state that the tax benefits are extended on the basis of the amounts paid by the co-owner and co-borrower.

As mentioned above, for a single self-occupied property, you may claim tax benefits of a maximum of ₹200,000/- per annum on the interest component of the home loan. Therefore, if you and your co-applicant are serving as both, the joint owners as well as the co-borrowers and are both servicing the loan, you become eligible for a total tax reduction of ₹400,000/- (₹200,000/- each) per annum. Also, both joint owners and co-borrowers servicing the loan can claim tax benefits of ₹150,000/- per annum each under Section 80C of the Income Tax Act, which amounts to a total saving of ₹300,000/- per annum. Therefore, joint home loan tax benefits are provided on the basis of the ratio in which both applicants are servicing the loan.

Determining the share of both applicants in the joint home loan – things to remember

Your property share is fixed when the property is purchased. It can be in different forms as under:

  • The share may be by way of equal down payment contribution with both parties holding an equal stake in the home loan.
  • One of the two parties may have paid their entire share of the loan through down payment and yet may be listed as joint owner and co-applicant.
  • One of the two parties’ name or role may not be mentioned or defined in the loan agreement or certificate issued by the lender.

In all the above mentioned cases, the share of both applicants may be presumed equal unless there are special circumstances.

As is apparent, there are many joint home loan tax benefits. Joint home loans help distribute the financial burden, while both applicants can benefit from the tax reductions offered under various sections of the Income Tax Act of 1961. Also, as both, yours and your joint applicant’s income increases over a period of time, you can pay off the loan faster and becoming debt-free before your chosen loan tenure.

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