Buying a home is an important financial goal in everyone life. Today, with most financial institutions offering attractive interest rates and low processing fees on home loans and the Income tax benefits available on the said loans, more and more people are opting for home loans to realize their dream of buying and owning a home.
Why Home Loan
With changing times, men are not the only earning members in the family anymore. The concept of co-earning and mutually taking up household responsibilities has also gained momentum in India. This has enabled most people to get a joint loan with their spouse and co-own their home, thus also sharing the responsibility of realizing a dream.
However, this is not the only aspect of a joint home loan. Apart from sharing responsibilities and expenses, people also tend to enjoy double tax benefits from a joint home loan.
Before we get into the details of the benefits you enjoy upon opting for a joint home loan, let us discuss the eligibility criteria.
Eligibility Criteria to avail tax benefits on a joint home loan
- You must co-own the house: To be eligible for claiming the tax benefits, you must be a co-owner of the house for which home loan has been availed. Sometimes, there are cases where people opt for joint home loans, but the borrower does not co-own the house. In such cases, the borrower who is not a co-owner of the house may not be eligible to avail tax benefits on the loan.
- You must be a borrower in the joint home loan: Apart from being a co-owner of the house, it is also mandatory that you must also be a co-borrower in the joint home loan and should contribute towards the EMI Equated Monthly Installments. In case the owner is not a borrower, the tax benefits are not applicable.
- House must be fully constructed: Apart from the above two points, it is also mandatory that the construction of the property is complete. You cannot avail benefits for an under-construction property. Nonetheless, the amount that is spent on construction can be claimed for tax benefits in five equal installments every year, starting from the year the construction is completed.
Now, let discuss the tax benefits of co-owning a house.
- In respect of self-occupied house: Under Section 24 of the Income Tax Act, 1961 the owners can claim a tax deduction of up to Rs. 2 lacs each on interest payable towards the joint home loan. In respect of let out house: Owing to amendment made by Finance Act, 2017, the loss in respect of house property that is eligible to set-off against income from other heads is limited to Rs 2 lac. Any unabsorbed loss over the said amount shall be carried forward for 8 assessment years and can be set-off only against income from house property. Hence, the amount of loss that can be set-off against other heads of income in the financial year in which loss is incurred will be limited to Rs. 2 lacs to each co-borrower also has to be a co-owner.
- Deduction of Rs 1.5 lacs each towards repayment of principal amount: Under Section 80C, each co-borrower also has to be a co-owner can claim tax deduction of up to Rs. 1.5 lac on repayment of the principal amount Repayment includes payment of principal component contained in an EMI, and amount part payment.
- Costs of registration and stamp duty under Section 80C: A procedure to get the registration of the house and pay a stamp duty is to be done when the house is bought. Thus, each owner can split the costs and avail tax deductions under Section 80C.
Note that the maximum tax benefit under Section 80C of the Income Tax Act, 1961 is limited to Rs. 1.5 lac. Hence, one has to plan accordingly in order to avail the maximum benefits when planning to co-own a house with a joint home loan.
Written by Mayank Lal