How to Claim Tax Benefits in Joint Home Loan?

When purchasing a house, it is always advised to have a joint applicant since it offers various advantages. When there are co-applicants, the loan amount that can be procured increases. However, the most attractive advantage of a joint home loan is the tax benefit that can be enjoyed by both the applicants.For claiming tax benefits, the joint borrowers should also be the joint owners of the house that is being purchased. Joint home loan tax benefit can be claimed separately by both the owners.

Following are some of the significant facts and details that must be known for claiming tax benefits from a joint home loan:

1. The joint home loan tax benefit will be divided between the co-applicants in case of the joint loan. This implies that one home loan can be beneficial for two taxpayers if they are joint borrowers of that loan.
2. The tax benefits can be claimed under Section 24 for the interest component and 80C for the principal component.
3. The tax benefits are divided among the co-applicants only if both the applicants are co-owners of the home for which the loan has been taken.
4. The tax benefits will be divided among both the owners in the same proportion in which they own the home.
5. The ownership ratio must be clearly stated in the property papers.
6. The tax benefits on a joint home loan can be availed if there are only two applicants of the loan and no more than that.

The co-applicants can separately avail tax benefits from a joint home loan. These benefits can be claimed in the following ways:

1. Tax Benefit on Interest Payment: When the home is occupied by the owners’ cum borrowers, then the annual interest that can be claimed under tax return by each owner individually is up to ₹2 lakhs. The interest paid by each owner depends upon the entitlement ratio of the owners.However, if no ownership percentage is mentioned, then the interest component of the Equated Monthly Installment has to be paid in equal proportions by both the owners. Under these circumstances, both the owners can claim tax benefit of ₹2 lakhs on the annual interest payment. However, if the home is not self-occupied, but rented then both the owners can individually claim any amount of interest in tax returns.
2. Tax Benefit on Principal Payment: The co-applicants can individually claim a maximum of ₹1.5 lakhs in tax returns for the principal component of the joint home loan.
3. Tax Benefit Registration and Stamp Duty Payment: Under Section 80C, each applicant can also claim tax returns on registration and stamp duty in the year of payment.

Each co-borrower can claim a tax deduction up to Rs. 1.5 Lakh on the principal part of the EMI under Section 80C. Furthermore, the borrower needs to keep in mind that this deduction is available for a fully constructed property. This tax benefit can be availed if the house is a self-occupied property.

While joint home loan borrowers can claim a tax deduction for the principal part, they can also avail a deduction for the interest part of the EMIs. In case the property is self-occupied, the borrowers can get an exemption of up to Rs. 2 Lakhs per year on the interest part. But to avail this deduction, the construction of the house needs to end within 5 years of taking the loan. If the construction doesn’t start within the specified period, then the benefit reduces to Rs. 30,000 per year.

If you are a first-time borrower, then you also avail an additional tax benefit of Rs. 50,000 on the interest part under Section 80EEE. Both borrowers can avail this deduction.Furthermore, this deduction can be availed if the value of the property is Rs. 50 Lakhs or less. Also, the loan amount shouldn’t exceed Rs. 35 Lakhs.

There are many benefits of availing a joint home loan. But there are a few things that borrowers need to keep in mind before applying for a joint home loan. The co-applicant of the loan needs to have a regular income. Furthermore, it is important for the co-borrowers to have life insurance policies. Insurance policies can help the borrowers in case one of them passes away untimely. In such a case, the other person might not have to suffer from a financial burden.

Apart from providing financial assistance to the borrowers, a home loan can also offer them tax benefits. Hence, it is a good option to borrow a home loan and reduce tax liability.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.