Home loan: Should you opt for single or joint holding

Now with an impending rate cut in January, interest rates might come down which in turn would interest people to go in for home loans

In an interview to CNCBC-TV18, personal finance expert, Anil Rego, Right Horizons explained the processes and limitations for taking a home loan. He also throws light on tax implications of a single holding or joing holding. Below is the edited transcript of his interview on CNBC-TV18 Q: Now that it appears interest rates might be coming down come end of January, a lot of people might be interested in buying homes. What would you recommend - should home loans be taken with a single holding or joint holding and also what are the tax implications for each kind of holdings? A: One can choose between single and joint holding depending on various circumstances. For joint holding, the tax law allows you Rs 1.5 lakh of interest and if you have a larger loan which goes beyond that then if you together take it then each one of you can get upto Rs 1.5 lakh of tax benefit, which means that if your loan is having interest of Rs 3 lakh or more, you can get that benefit which is substantial. When you look at it on individual basis, basically it allows only one self-occupied property for an individual. So if you are supporting your parents as well into a second house then you would need to look at that. The other case is there are restrictions on reinvestment of capital gains. If you hold one house then you can still reinvest the capital gains from any other area into the second house but if you go past that, then you cannot do it. Q: So you are saying that while a couple maybe advantaged in tax terms, if they were joint owners of a home and joint applicants for a home loan, the problem will be if they want to buy another home then at least one of them will be the owner of a second home and that would invite wealth tax implications? A: No, it is treated as a let out property, so you cannot get a self occupied interest. You will have to assume a rental for that as if you are getting the rental even though you are not. Q: Wouldn’t there be wealth tax implications for such a second home? A: It will also create wealth tax implications. _PAGEBREAK_ Caller Q: I am in the process of purchasing a property. It is a distressed sale and I as such investor does not have the time to apply for a home loan and will financially deal with it myself. A bank executive told that I can apply for a home within six months of purchasing the property and making the full payment towards it. In such a situation the bank will be issuing disbursement cheque in my favour - Will the Income Tax Department recognize this as a home loan and will I be able to get the tax benefits? A: There is a technical point that you need to keep in mind there. The Income Tax Law basically says that the purpose of the loan should be towards either construction or purchase of the property. So there he has a technical difficulty, but the banks have a policy that up to six months they treat it as a home loan and after that they call it a mortgaged loan. So most of the time the Income Tax Department may not go back and actually check the details of it, but I would think it is safer to actually take a home loan right from the beginning. Q: Do you mean it could be disputed by an Income Tax Authority? A: It could be disputed, yes. Query Q: An investor is planning to buy a flat in a Bangalore in a housing society where the construction is complete, but the registration of that property has not been done so far due to some certification issues. The reason being that earlier it used to be under village limits but now it has come under municipal limits – so will she be eligible for a bank loan? Do you think she would have any kind of issues? A: Yes, definitely because banks would not then have a security in the customer’s name. So, banks really would not want to give a loan for a situation like this. Q: If it changes from village limits to municipal limits, why should her own title to the property be in question? A: The question is whether she is able to register it or not. Here she is saying that she cannot register the property. So then who holds the property, the title is the question. So registration of the property is the issue.