All joint owners could use joint housing loan’s tax benefits if they fulfilled specified conditions. Let’s see the benefits of joint home loan tax.
Joint home loans are a way to ease your repayment of the loan. Joint home loans not only lessen or distribute the burden of a home loan but also reduce the home-loan interest, as you have a co-applicant.
All joint owners have joint home loan tax benefits from a joint housing loan. It is worth noting that “ownership” of a property is a prerequisite for availing any property tax benefits. You may have taken out the loan jointly, but if you are not the property owner, you may not be entitled to tax benefits.
There have been situations where a parent owns the property, and the parent and child jointly take out a loan (paid off by the child alone). In such a case, a child who is not a co-owner gets deprived of tax benefits from the housing loan.
The EMI payable will have two components- interest and principal. In case you own a property, then the amount paid for the principal will get you a deduction under Section 80C.
Suppose you already have another house not occupied by anyone or your parents/family live in it. In that case, it will also be considered into the category of self-occupied.
Conditions for applying for tax benefits from the property
You must be a co-owner of the property: You must be the owner of the property to avail the tax benefits of the home loan. According to the property documentation, the loan is often taken out jointly, but the borrower is not the owner. In this case, you may not be eligible to claim a joint home loan tax benefit.
You must be a co-borrower for the loan: In addition to being an owner, you must also be an applicant, according to the loan documents. Owners who are not borrowers and do not contribute to EMIs will get deprived of tax benefits.
The property’s construction must be completed: Property tax benefits can only get claimed from the financial year in which the construction is completed. Tax benefits are not available for property under construction. However, all pre-completion expenditure is claimed in five equal instalments starting with the year in which the building was completed.
How to claim joint tax benefits for joint owners?
You can list your spouse as a co-applicant if employed. Several banks offer discounts to female applicants. Apart from the stamp duty exemption, there are also interest rate reductions and tax savings on both principal and interest.
The maximum Joint home loan tax benefit of a housing loan can be up to 7 lakhs per year, including principal and interest payments. Joint home loans are only available to spouses who own the property jointly.
Joint housing loan with a non-working wife
There are no benefits if you take out a combined home loan with your non-working spouse if you don’t have enough cash and want to take advantage of a higher credit limit because there would be no other sources of income. However, having a non-working spouse as a co-applicant for cheaper stamp duty and lower interest rates on home loans can still get beneficial as many banks provide home loans to women at lower rates.
Co-borrowers vs co-owners
Your portion of the jointly owned property is taxed according to the Income Tax Act under section 26. Taxes are levied on the jointly owned portion of each individual’s residence. Body of Individuals (BOI) or Associations of Persons (AOP) cannot get taxed if your interest in the common property is certain or ascertainable.
To be entitled to tax benefits, you must be both a co-borrower on the home loan and a co-owner of the property. If you do not meet this crucial requirement, you will not receive the tax benefits associated with a home mortgage.
An individual can join another close family member (father, son or husband) to qualify for a larger loan without owning any share in the purchased property.
If the co-borrower is not a co-owner of the property, they cannot apply for a housing loan tax benefit in such situations. You can claim the tax benefit individually if you acquire the property under a joint name.
Applying the tax exemption rate
You can also be a co-owner and co-borrower, but you are not responsible for servicing the debt. Tax benefits are only available for amounts you pay; therefore, you cannot apply them for a home loan in this scenario.
You can get interest benefits up to Rs 2 lakhs per joint owner with one self-occupied property.
Each co-borrower can claim a Joint home loan tax benefit of up to Rs 1.50 lakh per annum on home loan repayments under Section 80C and other eligible goods. Your mortgage will be tax deductible in proportion to how much you repay.
Determining your share of the home loan
Once you acquire the property, your ownership stake is set in stone. It can be in the form of a gift for a down payment or your share of the mortgage. A co-borrower in a home loan application can also be a co-owner of the property, even if you have paid your part of the property with the entire down payment.
When buying a home, your ownership portion may not be included in the contract, and your part of the mortgage may not get listed as a co-borrower on the lender’s home loan letter or combined home loan certificate. Unless other factors indicate otherwise, it is assumed that the shares in the house are equal.
Each joint owner’s payment history can determine their share of the home loan. It is always good to prepare an unstamped memorandum of understanding to identify the different interests of each co-owner of the property and avoid future problems.
The memorandum of understanding can include the payment details for each co-owner.
Declaration form of a co-applicant for a housing loan for income tax
- Both parties must submit comprehensive paperwork stating the same to get the Joint home loan tax benefits.
- Ensure that all co-owners do not claim the same interest or principal payments as tax benefits.
- Other people in the group must sign a No-Objection Certificate (NOC) stating they will not claim any tax benefit from the amount.
- In addition, they would have to determine the percentage of interest and principal payments that the taxpayer can deduct.
Tips for joint owners for a home loan
- In the goodwill of all parties involved, each party’s contribution to the transaction should be clearly defined. It eliminates the possibility of future conflicts and disagreements regarding property division between the two parties.
- The home loan agreement should mention the EMI benefits if one party pays. It should also explain how much of the co-leaders money is getting used.
- Banks offer joint housing loans to people with a specific type of relationship. First, check with the bank if they will grant you a combined home loan, for example, with your sister.
Can home loan interest get claimed by both husband and wife?
Co-owners, such as a joint home loan with homeowners and co-borrowers, can benefit from home loan interest and principal repayments.
Each owner’s joint property is taxed individually according to section 26 of the Income Tax Act. Since the property is jointly owned by you (husband) and your wife, you are both entitled to interest relief under Section 24 and the repayment of home loan principal under Section 80C, provided you both pay back the home loan in the total amount.
Joint declaration of home Loan tax benefits in PDF format
It is imperative to note that you must be a joint property owner to be eligible for the tax savings that come with a joint ownership declaration form. Only then can you deduct the principal and interest payments from your taxes.
How to increase the tax benefits of a joint home loan?
The Home Loans Income Tax Act of 1961 provides certain benefits. Section 24(b) provides the Joint home loan tax benefits for co-owner interest payments, while Section 80C includes tax benefits for principal repayment, subject to special requirements. Per the tax and investment experts, opting for a combined home loan will increase a couple’s home loan eligibility.
However, when it comes to the declaration of a co-applicant for a home loan, there is a lot of misconception about who can apply for the home loan benefit and how much tax benefit they can get.
Experts say that if you own a home jointly, you get taxed on your share of the property as an individual, and your portion of the jointly owned property gets taxed per Section 26 of the Income Tax Act.
Tax benefits for a joint housing loan
The maximum interest deduction for the self-occupied property is Rs 2,00,000 per co-owner who is also a co-applicant. Consequently, each owner acquires a part of the total interest settled on the loan. The total interest claimed by the borrowers/owners cannot go beyond the total interest paid on the loan.
From Budget 2017, the amount of interest claimed as a deduction on a rental property is capped at Rs 2 lakhs.
Section 80C permits each co-owner to deduct a max of Rs 1,50,000 towards principal repayment, and section 80C has an overall maximum amount of Rs 1,50,000.
What to know if you are considering a joint home loan?
Those who cannot afford a large home loan can consider a combined loan. Banks and lenders will not care if the borrower splits the loan amount with a family member or an acquaintance. With a joint home loan, your chances of getting a bigger loan with lower interest rates increase.
However, a loan for a shared house can only be obtained if the creditworthiness of both partners is high enough. Approval of a combined home loan is conditional on the income of both parties.
As part of the combined mortgage requirements, both borrowers must have an income to pay the monthly EMIs.
Joint home loans are eligible for Section 80C benefits, which both borrowers can claim. Both borrowers can deduct amounts up to Rs 2 lakhs. In addition, borrowers can deduct up to Rs 1.5 lakh from their taxable income.
Joint home loan—The pros and cons of adding a co-applicant to your home loan
Adding a co-applicant to your loan application increases your loan eligibility. Before you decide, evaluate the advantages and disadvantages of a combined home loan.
Pros of adding a co-applicant to your home loan
To be entitled to a higher loan amount and bear the financial burden equally, it is necessary to obtain a combined housing loan with a co-applicant for a housing loan.
Two or more people apply for a loan under their joint names, with one being the main applicant and others as secondary applicants.
Since banks assess eligible loan amounts as a percentage of income, joint loans improve credit eligibility. It is calculated as a multiplier for all previously negotiated loans.
Cons of adding a co-applicant to your home loan
It is important to remember that being a co-applicant is more than just a formality. There are also legal and financial obligations on both parties that they must fully understand.
While many home buyers opt for a joint home loan to increase their eligibility, their loan repayment and tax benefits must be proportionate. Tax regulations allow you to avail of various Joint home loan tax benefits when it comes to home loans.
Under certain circumstances, benefits are available under section 24 (b) for interest paid and according to section 80(C) for principal repayment. Couples often opt for a joint home loan as it improves the home loan eligibility of their co-applicants. However, when it comes to shared home loans, there is a lot of uncertainty about who is entitled to claim the home loan benefit and how much tax benefit can get claimed.
What are the tax exemptions for joint home loans?
Among other benefits, joint home loans allow borrowers to get a joint home loan tax exemption. Joint property ownership in one's name does not mean the owner is entitled to tax relief.
How to qualify for a joint home loan?
Financial institutions, including banks, NBFCs and housing finance companies, often insist that applicants be joint owners to be entitled to a joint home loan. To qualify for a joint home loan, you must secure a joint ownership clause in the property contract.
How to apply a tax benefit to the declaration of a co-applicant for a housing loan?
Income Tax Home Loan Co-Applicant Declaration Form For both parties to claim the tax benefit, each party has to submit a detailed document specifying the same. This document can get obtained from a bank branch to take advantage of tax benefits.
Can a working couple get a joint home loan?
Working couples are undoubtedly eligible for a joint home loan because both applicants are working, and there will have two incomes to support the debt.
How to get a higher amount of housing loan?
Banks do not lend more than your monthly income, regardless of the house's purchase price. In such a case, a joint application for a housing loan increases the chance of obtaining a higher housing loan.