Owning a house is still a distant dream for millions of Indians. Sadly, not everyone has enough money to realize the dream of owning a house. This is when an aspiring home owner looks towards availing a home loan. Home loans are those loans issued by banks and NBFCs, specifically for funding housing related activities.
Home loans are issued for the purpose of house construction, house renovation and house reconstruction. Home loans, like any other loans, are issued at a particular rate of interest. Home loans are issued only to eligible applicants. Below mentioned are the general eligibility criteria for availing home loans in India:
Many applicants don’t meet the eligibility criteria for home loan due to insufficient income. In this case, you can avail a home loan with a co – applicant. By adding a co–applicant in your home loan application, you enhance overall income and can avail the home loan. It is not necessary to register the house under both the main applicant and co – applicant, but it is beneficial to do so.
The government has offered a lot of tax benefits for individuals to encourage buying a residential property under the initiative 'housing for all by 2022'. One of the most important things to remember is that if the property is jointly owned, then he/she would receive extra tax benefits at the same cost. In this article, we have covered the tax benefits if the residential property is jointly owned. A residential property need not necessarily be jointly registered only with the spouse or parent, but also with a relative, friend or a business partner.
Want to know more on savings accounts? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products
As per the Income Tax Act, enacted 1961, you can claim tax deductions for the interest paid towards repayment of home loan under the head 'Income from house property'. If the house is self occupied, then you can claim home loan interest deduction, up to Rs 2 Lakhs a financial year.
If the house is jointly owned, then all the house owners would be eligible to claim a tax deduction on the interest paid on home loan, of up to Rs 2 Lakhs per financial year. For example, consider the overall home loan interest paid over a financial year by an individual, who is the single owner of the house, is Rs 5 Lakh, and then the total deduction for interest paid on home loan which can be claimed by him/her would be capped at Rs 2 Lakh per Financial Year.
However, if the property is jointly owned and the co - owners are repaying respective shares of the home loan along with the interest, then all the co-owners are eligible to claim a deduction of maximum of Rs 2 Lakh each a financial year, for the interest paid on home loan.
In the initial years, the interest component would be high in the equated monthly installments, EMIs, and it is certain to exceed Rs 2 Lakhs. As per the Income Tax Act, tax deduction for interest payment on self-occupied property is capped at Rs 2 Lakhs a year. If you are paying more than this, then you can’t claim for the excess amount.
SEE ALSO: Tax Benefits Of Buying A House
Similar to the self-occupied house, owning a house jointly offers tax benefits to all individuals earning rental income as well. First, the rental income would be divided amongst the owners. If one of the joint owners falls in the lower income tax slab, then they avail the benefit of a lower tax rate, on a part of the rental income.
Second, the loss from house property for each individual is capped at Rs 2 Lakhs per financial year, set-off against the other heads of income of the same assessment year. Any loss exceeding Rs 2 Lakh would be carried forward to the following assessment years. Accordingly, all joint owners would be eligible to set off a loss of Rs 2 Lakhs on individual basis against the other heads of incomes.
Consider this example: if the interest paid on a home loan crosses Rs 2 Lakhs per year and there is a loss Rs 4 Lakhs, and if the property is solely owned, then the owner would be able to adjust the loss only up to Rs 2 Lakhs against the other incomes earned. The remaining loss of Rs 2 Lakhs would be adjusted in the upcoming financial year. However, if the house is jointly owned by two individuals, then Rs 2 Lakhs can be set off by each joint owner per assessment year against the other income and the entire loss of Rs 4 Lakhs would be set off in the same assessment year.
Capital gains resulting from the sale of a residential property are taxable. As per Section 54 of the Income Tax Act, if an individual purchases another residential property within the mentioned timeframe, then the amount invested in the new residential property can be deducted from the taxable capital gains. Section 54 specifically states that the money invested in one residential property (two properties in specific cases as announced in the 2019 Union Budget), can be deducted from the capital gains. If the house is jointly owned, then the capital gains would be calculated for each of the owners individually and each co-owner gets benefits of this provision which restricts the taxable capital gain. Each co-owner uses a part or whole of his or her portion of the first house sale proceeds in buying another residential property (within the stipulated time) and therefore reduces his or her taxable capital gains. Consequently, the total taxable capital gain would come down.
As per Section 54EC of the Income Tax Act, if individuals invest in specified bonds, then they are entitled to claim a tax deduction of up to Rs 50 Lakhs on the capital gains resulting from the sale of a residential property.
Considering the staggering real estate price in India, especially in the metro cities of New Delhi, Mumbai, Bengaluru and Pune, a deduction of Rs 50 Lakhs may not be sufficient in covering the capital gains and individuals might have to pay tax on capital gains earned in excess of Rs 50 Lakhs. However, if the property is jointly owned, each co owner is allowed to invest individually in specified bonds and separately avail a tax deduction of Rs 50 Lakhs each on the investment made. The popular Section 54EC bonds are issued by the National Highways Authority of India (NHAI) and the Rural Electrification Corporation (REC).
To sum up, owning a residential property in joint names offers various tax benefits. However, it is crucial to note that the residential property must also be funded by each of the co owners. The share of the co-owners must be definite and ascertainable.
Income tax officials are closely scrutinizing the source of funding and allocation of shares of the residential properties where the same is registered in joint names and tax deductions are claimed by more than one individual, specifically when one of the owners is falling under a lower tax bracket.
Documentation: Availing home loans with co- applicants can be a tedious process as it has to be repeated twice or thrice depending on the number of applicants. Even the registration of the property requires detailed documentation depending on the number of owners.
Credit Score: All co owners are equally liable to repay the home loan. If there is a default or late payment, then the credit score of all co-owners gets affected.
Legal Disputes: Inheriting residential properties that were jointly owned might seem to be a problem. Legal disputes might result in selling the property to share the proceeds.
You May Also Watch
Keep your Financial Cognizance up to date with IndianMoney App. Download NOW for simple tips & solutions for your financial wellbeing.
Have a complaint against any company? IndianMoney.com's complaint portal Iamcheated.com can help you resolve the issue. Just visit IamCheated.com and lodge your complaint. If you want to post a review on any company you can post it on Indianmoney.com review and complaint portal IamCheated.com.
Be Wise, Get Rich
This is to inform that Suvision Holdings Pvt Ltd ("IndianMoney.com") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.