Many home loan borrowers think about taking a Joint home loan as a practical option to get higher loan amount and additionally to avail income tax benefits. Joint Debt has become a part of the household finance currently.
One of the first benefits of a joint loan is that it will increase the borrowing capacity of the prospective home buyers. The combined repaying power of the applicants (two or more) is considered whereas sanctioning a higher loan amount.
A joint home loan not solely allows you to share your debt burden however additionally allows you to extract maximum benefits offered by the IT Act.
As per the existing income tax Laws, each the individuals (loan applicants) will claim income tax deductions on the principal repayment under section 80c and on the interest amount below Section 24. the maximum amount that may be claimed as tax deduction depends on the use of the property that is whether it’s a ‘Self occupied property’ or a ‘Let-out property’.
What is a Joint Home Loan? – A joint home loan is a loan that is taken by more than one person.
Who is a co-borrower? – A Co-borrower is a person with whom you are taking the home loan jointly.
Who is a co-owner? – A Co-Owner is an individual that shares ownership in an asset with another individual / group.
Joint Home Loan & Eligibility rules / Conditions
- Generally a Joint home loan will be taken by a maximum of SIX persons (minimum being 2 applicants).
- A co-borrower (loan applicant) could or may not be the co-owner of the property. But, banks may usually suggest a co-borrower to also be a co-owner of the property. Do note that, being a co-borrower for a house doesn’t automatically make one a co-owner.
- Repayment of a joint home loan is that the collective responsibility of each the borrower and co-borrower(s) and each of them is liable for the loan.
- If the loan applicants are married couples then it’s a perfect arrangement for home loan providers. The couple is at liberty to decide if they need to be co-owners or if only 1 of them wants to be a co-borrower.
- If the loan applicants are Father & son or Father & unmarried daughter then Lenders generally insists on the son / daughter being the first Owner of the property. (This will be applicable when Mother & unmarried daughter are the borrowers)
- If the loan applicants are ‘brothers’ then banks insists on they being the co-owners of the property.
- Generally, friends or unmarried couples living together don’t seem to be allowed to take joint housing loans.
Joint Home Loan & Income Tax Benefits
Section 80c – As per this section, the repayment of principal amount of up to Rs 1.5 lakh may be claimed as tax deduction by the applicants individually. All the co-borrowers will avail tax edges. If there are 2 co-borrowers then the maximum total tax deduction under Section 80c may be up to Rs 3 lakh (subject to actual principal repayment amount).
Example : wherever the husband and wife as co-borrowers are paying a total of Rs 1 lakh as Principal element of the home loan EMI, every of them will avail tax exemption of Rs 50,000 individually.
Section 24 – As per this section, the interest payment of up to Rs 2 lakh (for Self occupied property) are often claimed by the home loan borrowers. If there are 2 co-borrowers then the maximum total tax deduction under Section 80c will be up to Rs 4 lakh. (The maximum interest amount that may be claimed as tax deduction u/s 24 is unlimited for a Let-out property).
Example : where the husband and wife as co-borrowers are paying a total of say Rs 2.5 lakh as Interest element of the home loan EMI, every of them will avail tax exemption of Rs 1,25,000 individually (assuming the share within the home loan as 50:50)
Ownership – To avail the income tax benefits on a Joint home loan, the co-borrower of the loan has got to be the co-owner of the property. So, if you’re a co-borrower however not a co-owner of your property then you’ll not avail the income tax benefits. (Co-ownership is mandatory to avail income tax benefits. So, if you and your spouse are co-borrowers for a property owned by another family member then you’re not eligible to claim any tax benefits, as you don’t own the property.)
Ownership Share – The share in tax exemption that every co-borrower gets is in proportion to the ratio of possession within the property. Therefore, it’s advisable for joint owners to procure an ownership sharing agreement stating the ownership proportion on a stamp paper as legal proof of the ownership.
Highest tax bracket: The tax benefits are applicable in ratio of ownership within the property and therefore the ownership of property should be carefully decided keeping in mind the re-payment capacity of each the borrowers. A co-borrower who is earning well and is within the higher income tax slab rate will opt for higher share in ownership / Loan EMI.
Example : Manish & Maya (husband & wife), each are independent salaried individuals. Maya is in higher income tax slab rate when compared to Manish. They acquire a home loan of Rs 50 lakh @ 100 pc for a tenure of 20 years. The EMI on this home loan is Rs 48,251. As Maya is in higher tax bracket, they decide to have 60:40 ownership ratio. Maya needs to pay 60 minutes of the EMI amount to take the maximum benefit of tax savings.
Liability: All co-borrowers are jointly and severally liable to repay the loan. So, it’s prudent to consider|to contemplate} entering into an agreement about the splitting of loan liability with other co-borrower(s) to avoid any clashes in future.
Insurance: it’s advisable that all the borrowers should take separate term insurance plans (better to avoid Mortgage insurance) to mitigate the financial burden on one spouse / co-borrower in case of other’s demise. this way he /she will get the best out of the tax savings.
Unfortunate Events: just in case of divorce or a co-borrower files for insolvency or a co-borrower passes away, it becomes co-borrowers’ responsibility to pay the entire loan. The repayment record of a joint home loan reflects within the credit score of all co-borrowers. So, within the event of any unfortunate incident, it’s advisable to identify an alternate co-borrower (if it’s not possible to convert a joint home loan to a single loan).
FAQs on Joint Housing Loan
- If I buy a house jointly with my spouse and take a joint home loan, Can we both claim income tax deduction? – Yes, if your spouse has a separate source of income, both of you can claim tax deductions individually.
- My husband and I have jointly taken a home loan. He pays 60 percent of the EMI and also has 60% share in the property . What will be our individual tax benefits? – The tax benefits are dependent on the share of ownership. So, both of you can claim tax deductions in the ratio of ownership i.e., 60:40.
- I have a home loan in which I am a co-applicant along with my wife. However, recently she resigned from the job and now the total EMI amount is paid by me. What is the total income tax exemption that I can avail of? – As long as you are co-owner & co-applicant of a home loan, you can claim tax benefits. If you are the only one who is repaying the loan, you can claim the entire tax benefit for yourself (provided you are an owner or co-owner). You can enter into a simple agreement with the other borrower(s) stating that you will be repaying the entire loan amount.
It is evident that besides the benefits that a joint home loan brings along, it is important for both partners (or all the co-borrowers) to understand their responsibilities towards the loan and its implications.