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Tax Benefits On Home Loan For Joint Owners Research Team | Posted On Monday, August 06,2018, 06:39 PM

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Tax Benefits On Home Loan For Joint Owners



Gone are the days when people used to think it’s not good to avail loans. Everybody wants to live in their own house but not everybody can afford to buy a house on their own. This is when a home loan comes handy. Home loans not only fund the purchase of house, but also offer tax benefits. Home loans are issued by banks and financial institutions to purchase, construct, renovate, repair and reconstruct a house.

Amount borrowed as home loans can be utilized only for above mentioned reasons. Most houses in urban areas are bought by availing a home loan these days. All thanks to inflation, it’s become almost impossible to buy a house without availing home loans. If your income is not sufficient to meet home loan eligibility criteria, then you can apply with co-applicant(s) to enhance the eligibility and get the desired loan amount sanctioned.

By availing a joint home loan, both the main applicant and co-applicant(s) enjoy tax deductions as per the Income Tax Act, on the same home loan. Home loan borrowers enjoy home Loan Tax Benefits as per Section 24, Section 80EE and Section 80C.

A Joint Home Loan is a loan taken by more than one borrower. Also, the responsibility for repayment of the home loan lies equally with all of them.

  • Co-owners are joint owners of a property. They share the rights to a property.
  • Co-applicant is a person who applies for a Home Loan along with the main applicant. They are jointly responsible for repaying a loan.

Tax Benefits On Home Loan For Joint Owners

Joint owners can claim tax benefits on repayment of a joint home loan provided the following conditions are met:

1. Ownership in the property:

It is noteworthy that only joint owners can enjoy home loan tax benefits. ‘Ownership’ in the property is a very important factor when availing any home loan tax benefits. Applying for a loan jointly doesn’t make you joint-owners. Therefore, unless you are both, a joint-owner of the property and a joint-applicant of the home loan called co-applicant, you cannot enjoy the tax benefits on the property.

2. The owner as per the property documents:

Your ownership in the property must be expressly mentioned or declared in the property documents. Many times people avail home loans jointly where one of the borrowers is not an owner as per the property documents. In these cases, the borrower can’t claim tax benefits.

3. Co-borrower of the home loan:

Just being a co-owner of a property doesn’t make you eligible to claim tax benefits on the property. In order to enjoy home loan tax benefits, you have to be a co-borrower of the home loan. You must be an applicant as per the loan documents. If you are not a joint-borrower of a home loan and don’t contribute to the EMIs, you will not enjoy tax benefits.

4. Construction of the property must be complete:

Home Loan tax benefits on a house property can be claimed only if the construction of the property is complete. You can start claiming tax benefits from the financial year in which the construction of the property is complete. However, under construction expenses or expenses prior to completion can be claimed in five equal installments starting from the year in which construction is complete.

SEE ALSO: Family Health Insurance Plan

Tax Benefits On Home Loan For Joint Owners:

On meeting the above conditions, the following tax benefits can be claimed:

1. Tax Benefits for self-occupied property:

Interest component: If each co-owner is a co-applicant to a home loan, they can claim a maximum deduction of Rs 2,00,000 a year under Section 24(b) on interest payments on the home loan. The quantum of deduction on interest paid is calculated based on the ratio of their ownership in the said property. Further, each co-owner or co-borrower can claim the interest benefit up to a maximum of Rs 2,00,000 a year.

Principal component: Each co-owner (who is also a co-borrower) can claim a deduction of a maximum of Rs 1,50,000 a year, towards repayment of principal under Section 80C in the ratio of owning the property.

2. Tax Benefits on rented property:

You are taxed on income received from a rented property. The good news is that it allows homeowners to claim certain deductions from rent received.

  • A homeowner, who receives rental income from a let out property, is allowed to deduct the municipal taxes payable on the property.
  • Rental income is taxable on an accrual basis. You can claim a deduction for the unrealised rent subject to certain conditions.
  • After the above two deductions, you get the annual value of the property. You are now eligible to a standard deduction of 30% of the annual value.
  • If you had borrowed for purchasing, construction, repairing or renovating the property, you can also claim deductions on the interest payable on this borrowed money. (This borrowed money need not necessarily be a home loan. Also, you can borrow money from anyone).
  • There is no ceiling on the amount of interest which can be claimed against rental income.
  • As per the Budget 2017-18, loss under the head ‘Income from house property’ can be set off against other incomes like salaries, profits or gains from business and profession or capital gains. However, there’s a ceiling limit of Rs 2 Lakhs. Any loss from the head ‘Income from house property’ beyond Rs 2 Lakhs can be carried forward for set off during eight subsequent years.

The tax benefits resulting from the above scenarios can be claimed by joint-borrowers (who are also joint-applicants) in the ratio of their ownership in the property.

If you alone are paying the home loan EMIs and the co-borrower is not contributing, you can claim the entire interest as a tax deduction. Stamp duty and registration charges on a property can also be claimed by all the joint owners.

Section 80C: Home Loan principal

A component of home loan EMI go towards repayment of Principal. Following are the tax benefits of the home loan principal repayments as per Section 80C:

1) You can avail tax deductions on the EMI (Home Loan Principal Component) paid towards home loan as per Section 80C of the Income Tax Act. However, the tax benefit is applicable only after construction is completed or after purchasing a move-in property.

2) You get tax deductions of up to Rs 1.5 Lakhs under Section 80C of the Income Tax Act. Under this section, you get tax deductions only if the home loans availed are for the purchase or construction of a new property and not for renovation/repair.

3) Section 24 of the Income Tax Act mandates the completion of construction of the property/house within 5 years of availing the home loan to get tax deductions. There is no such time limit to avail tax deductions under Section 80C of the Income Tax Act.

4) If you sell the property within 5 years of purchasing, then the tax deductions will be reversed and you will be taxed as per the laws of capital gain.

5) Stamp duty charges as well as registration fees are exempted from taxation. This is regardless of whether or not you opt for a home loan.

6) Stamp duty, registration and other expenses related to the transfer of property are also eligible for tax deductions as per Section 80C, subject to a maximum Rs 1.5 Lakhs a year. This must be claimed in the same tax assessment year in which the property is purchased.

Section 24: Interest on Home Loan

A component of home loan EMI go towards interest of home loans. Following are the tax benefits of the home loan interest as per Section 24:

1) You get tax deductions on the interest paid on your home loan. However, there are variations on the deductions that you avail which corresponds to the status of occupancy of the property and its completion.

2) You get tax deduction if the home loan availed is for the purpose of purchasing, constructing, repairing, renovating and reconstructing a residential property.

3) The deduction limit is Rs 2 Lakhs a year if the property is self-occupied whose construction is completed within 5 years of availing the home loan. The deduction limit drops drastically down to Rs 30,000 a year if the construction is not completed within 5 years of availing the home loan.

4) If the property is not self-occupied and is let out for lease/rent, then there is no limit on the deduction, before or after of 5 years window.

Treatment of pre-construction interest

Loan is disbursed in parts in case of a house construction through home loans. Interest is charged only on the amount disbursed and not on the whole sanctioned amount. You must be aware of the fact that lenders charge interest right from the day on which the 1st part of the loan was disbursed. The amount paid towards interest of home loan availed for construction of a house, is eligible for tax deductions of up to Rs 1,50,000 a year.

To avail tax deductions on pre-construction interest, you need to file and claim for tax deductions on the same assessment year in which the loan amount was disbursed. Consider the following example, if the construction of your house was completed in the financial year of 2016-17, on 31st July 2016, then you must claim 1/5th of the interest paid till 31st March 2016 when you file your income tax returns for assessment year 2016-17.

Section 80EE: Interest on Home Loan for first-time home buyers

Tax deduction as per the Section 80EE of the Income Tax Act can be claimed only by the first-time home buyers for the interest they pay towards home loan repayment. A maximum deduction of Rs 50,000 can be claimed under this section on interest. This deduction is claimed over and above the deductions made under Sections 80C and Section 24.

Section 80EE was in place for the first time in the financial year of 2013-14 for individual taxpayers to avail tax deductions on interests on home loans. At that time, the maximum deduction allowed was Rs. 1,00,000 a year. This tax deduction was available for just two financial years of 2013-14 and 2014-15. This Section was reframed reintroduced in financial year of 2016-17, and the amount of deduction was revised to Rs. 50,000 a year for the interest paid towards home loan. 

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