How To Claim Tax Benefits On Joint Home Loans

Joint home loans is always beneficial as your loan amount increases and your burden is also decreases as it is shared with the co-owner. That best part about joint home loans is both the owners can claim tax benefits.

Things You Should Know About Tax Benefits Against Joint Home Loans

A joint home loan offers distinct advantages for individuals seeking to purchase property together. Beyond sharing financial responsibilities, it presents significant tax benefits applicable to both co-applicants.

• In a joint home loan, tax benefits are shared among co-applicants, allowing multiple individuals to benefit from tax advantages, especially if the yearly loan payment can be split. This streamlined approach combines tax benefits into a single product – the home loan.
• The division of tax exemption is determined by each co-owner's share in the loan ownership ratio. Each applicant retains the right to individually claim a maximum tax rebate of INR 1.5 lakh (previously INR 1 lakh until AY 2016-17) and up to INR 2 lakhs for principal repayment through the home loan.
• An essential criteria for this type of home loan and its associated tax exemption is that the loan must be taken jointly by two people. Additionally, clear documentation specifying the percentage of ownership for each co-owner is crucial for availing tax benefits.

Conditions for Claiming Tax Benefits on Joint Home Loans

Both Must be Co-owners of the Property

To benefit from joint home loan tax advantages, individuals must be registered as co-owners of the property. Only those listed as property owners can claim these tax benefits, even if multiple borrowers are involved in the loan.

Both Must be Co-borrowers of the Housing loan

Co-owners taking out a joint home loan must also be co-borrowers to qualify for tax benefits. Individuals not contributing to home loan EMIs cannot claim these tax benefits.

Construction of the Property Must be Complete

To avail of tax benefits, the property linked to the joint home loan must be completely constructed. Typically, these benefits start in the financial year when construction finishes. Under-construction or incomplete properties aren’t eligible. Expenses made before completion can be claimed in five EMI cycles post-construction completion.

Maximum Income Tax Exemption Benefit that Can be Availed on Home loan by Joint Owners

The benefits of joint home loans can be enjoyed by co-owners and co-applicants even with regard to tax benefits.

Joint Loan Income Tax Benefits are as follows:

1. Under section 24(b), the maximum tax benefits on home loan for joint owners is upto INR Rs 2,00,000 on the amount paid towards the interest as per their ITR statements. The amount paid towards interest will be in proportion to the percentage ownership of each co-applicant.

2. Additionally, till Mar 31, 2022 co-owners can also claim an additional joint home loan tax exemption of upto INR Rs 1.50,000 towards the interest paid under section 80EEA (subject to certain terms and conditions). Please note that from April 01, 2022 this benefit will no longer be available.

3. If the loan was taken for the purchase of a construction of a new house from a recognized lender, then the amount paid towards the principal by co-owners upto INR Rs 1.50,000 can also be availed under section 80C. However, Section 80C will also include other components such as contribution to provident fund, ULIPS, etc.

Types of Tax Benefits for Joint Housing Loan

To understand the tax benefits better, here is a brief overview on the different types you must know:

Home Loan Tax Benefits for a Self-occupied Property

Co-owners and co-applicants of a joint home loan can jointly claim up to INR 2 lakh annually on the interest paid (Section 24b) as part of their income tax returns. This deduction offers a substantial advantage for homeowners who stay on their property (self-occupied).

Home Loan Tax Benefits for a Rented Property

Homeowners can claim up to INR 2 lakh deduction on home loan interest (Section 80C) if the owner or a family member resides in the property, even if it's vacant.

If the property is rented out, the entire home loan interest is tax-deductible. Up to INR 1.5 lakh exemption is available on the repayment of the principal loan amount.

8 Important Things You Must Know To Get Joint Home Loan Tax Exemption You have to be a co-owner

To get complete guidelines, for taxation of your share in the jointly owned property do read Section 26 of the Income Tax Act. The foremost criteria for claiming tax benefits, is that you should be a co-borrower of the loan, as well as a joint owner of the property. So if a person simply joins another immediate family member (father, son or spouse), to enhance the loan amount eligibility but without having any share in the purchased property, he becomes the co-borrower but not the joint owner. In such case he can’t claim the tax benefits on such home loans. Therefore, it is recommended that you should buy the property in joint names so you can individually claim the tax benefits.

The ratio of home loan

It is not necessarily that the home loan may not necessarily be in the same ratio as your ownership of the house property. As the share in the home loan is crystallised at the time of purchase of the property, the home loan should be serviced in the ratio arrived at the time of the purchase. This share cannot be altered at any point later. You will get tax benefits in the proportion to your share in the loan. So, it is advisable for joint owners to get an ownership sharing agreement clearly mentioning the ownership ratio on a stamp paper as legal proof of the ownership.

Must Read : How A Home Loan Calculator Can Help You Calculate Tax Benefits

When one should take Home Loan in Joint names

You should take the home loan in joint names only when you don’t have enough loan eligibility as single applicant. Join home loan gets you a bigger loan amount then your eligibility in Individual capacity.

Highest Tax benefit

A co-borrower who is earning well and is in the higher income tax slab rate can opt for higher share in ownership / Loan EMI. Home loan tax benefit is available for ready to move in property as tax benefits are not available for an under construction property. However, any expenses prior to completion are claimed in five equal instalments starting the year in which construction is complete.

Each joint owner and borrower can claim Rs.2 lakhs interest deduction

The share of ownership will allocate the total interest between them. If the percentage share is not specified, interest portion of the EMI is split equally and each of them can claim maximum up to Rs. 2lakhs in their return.

Joint owner can claim 80C deduction on principal repayment -

Each of the co-owner; co-borrower can claim deduction towards principal component of the EMI under section 80C. Rs 1.5lakhs is the maximum deduction that is allowed under section 80C.

Each joint owner can split costs of registration and stamp duty and claim 80C deduction

Payment made towards registration and stamp duty is eligible for deduction under section 80C provided these are claimed in the year in which they are paid. To avail the maximum benefit owners should split these costs and claim. When your interest outgo is more than Rs 2lakhs per annum on a jointly owned property then as a family you can claim a larger tax benefit for the interest paid on home loan.

Joint benefit structure

When more than one person takes and repays a home loan it is referred as joint benefit. The co-applicants are mainly family members, which include husband and wife or father and son or father and daughter or mother and son or mother and daughter as the case may be. In such a situation, tax benefits have to be divided between all co-applicants and hence known as joint benefits.

Must Read : How to plan your Finances before Applying for a Home Loan?

Who Can Apply for Joint Home Loan Tax Benefits

To get the most tax benefits on a joint home loan, eligible co-applicants include family members or close relatives like parents, spouses, siblings, or any unmarried children.

It is mandatory for the co-applicant to provide the following information to qualify their claim for tax benefits:

• PAN Card or Form 60, KYC documents like Aadhaar card, PAN card, etc.
• Income proofs, including
• For salaried - Past 3 years’ salary slips and 6 months’ bank statements.
• For self-employed - Past 5 years’ business revenues(proft/loss) and 6 months’ bank statements.
• A statement of IT returns is essential.
• You may have to provide additional documents during the processing of the loan.

Conclusion

Joint home loans provide numerous tax advantages by leveraging combined incomes for increased loan eligibility and shared repayment responsibilities. This not only maximizes tax breaks but also encourages financial collaboration. By utilizing a joint home loan strategically, individuals can significantly reduce their tax burden while sharing the responsibilities of homeownership. It's a win-win scenario for couples, families, or even close friends pursuing this shared dream. Visit SMFG Grihshakti for personalized joint home financing solutions to explore these benefits and begin your homeownership journey.