Joint home loan tax benefit: 3 ways to claim tax benefits for joint owners

One of the easiest ways in which you can get your home loan approved is to apply for it jointly with another, working member of your family. Buying a house along with your wife as the joint borrower can prove to be highly beneficial. Both you and your wife would qualify for higher tax benefits along with rebate on home loan interest rates as well as registration charges since lenders offer reduced interest rates to female borrowers. That said, you need to be aware of the tax laws if you wish to claim tax benefits on joint home loans. Here’s a look at the three conditions under which you can claim tax-benefits on jointly owned properties.

1.      You need to be a co-owner of the property purchased on loan

To qualify for the tax benefits that go with the loan, you need to be a co-owner of the property being purchased jointly – specifically a self-occupied property. Only then, will you be eligible for tax deductions on the principal amount repayment and interest payment.

In case of joint home loans, both members listed as co-owners become eligible for tax deductions of a maximum of ₹150,000 on the principal amount component. You can avail an additional deduction of ₹200,000 on the interest payment as well. The total interest payment is allocated between joint owners based on their ownership share. In case the percentage share is not specified, the interest portion of loan instalments or EMIs is equally split, wherein both co-owners can claim tax deductions of ₹200,000 individually while filing tax returns.

A point of confusion in case of joint home loans is if the joint owner can claim equal tax benefits in case of the same amount of principal repaid or interest paid against the loan. The answer is no; they cannot. For instance, if the interest amount repaid against the loan in FY 2018-2019 is ₹185,000 and the principal amount repaid is ₹60,000; then the joint owners may split the amount per their ownership ratio, and, separately claim the tax benefits. However, they may not claim tax benefits on the entire sum of ₹185,000 separately.

In case one of the two joint owners wishes to claim tax benefits on the full amount, the claimant must obtain the No Objection Certificate or NOC from the co-borrower. The co-borrower must state their will to forfeit the tax benefit by specifying the amount. Also, both borrowers must ensure that deductions claimed against stamp duty and registration charges under Section 80C of the IT Act, are also claimed within the same financial year.

 

2.      You need to be registered as a co-borrower of the home loan

Apart from being the co-owner of the property, one must also be listed as the co-borrower of the home loan, if they intend to claim the tax benefits that go with the loan. If one is listed only as an owner and not as a borrower, then one would not be eligible for tax benefits. This rule is in place since a co-owner may not necessarily contribute to loan EMI repayment. In contrast, a co-borrower is held responsible for repaying loan EMIs or defaulting on EMI repayment.

 

3.      The construction of the property purchased through the loan should be completed 

The third and final condition for claiming tax benefits on joint home loans is that the property construction should be completed. Borrowers can begin claiming tax benefits from the financial year in which the construction is completed. Borrowers may claim the interest paid during the stage of development in five equal instalments, beginning with the fiscal year in which the construction is complete, and the property is ready for possession.

Final thoughts: Lenders are more likely to approve joint home loans owing to the shared loan repayment responsibility. Apart from listing your wife as the co-owner/co-borrower, you can also reduce your tax outgo by purchasing the property jointly with your parents or siblings, listing a total of six members as joint property owners and borrowers. However, not all co-owner combinations are accepted by lenders, so you need to confirm the approved combinations from your lender before applying for the loan.