Getting Maximum Income Tax Benefits On Joint Home Loan EMI’s Get Rebate On Income Tax

One of the positive aspects of a housing loan is it offers several tax benefits to the person taking a loan. These benefits cover the interest as well as capital component of the loan repaid through equal monthly instalments (EMIs) over the tenure. But many a time it is not possible for a single individual to afford and service the loan, which results in two or more individuals jointly taking the loan. In such case how tax benefits will be accorded to the co-borrowers, let's find out.

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Joint structure

The term 'joint benefit' in a housing loan refers to a situation where more than one person takes and repays a home loan. Here, the co-applicants are 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. But joint benefits cannot be claimed before fulfilling certain conditions. So, what are these conditions? Let's see one by one.

Highlights

• Tax benefits get divided among co-applicants in case of a joint loan
• The division takes place in the same proportion in which the asset is owned by each co-applicant
• Each co-applicant can claim a maximum tax rebate of up to Rs. 1 lakh for principal repayment and Rs. 1.5 lakh for interest payment

• The very first condition is the house property has to be bought by the individuals jointly, and this should be in their joint names.
• The share of each holder should be clearly mentioned so that there is absolute clarity on the percentage ownership of each co-owner.

For example, a husband and wife jointly buying a property might want ownership in the proportion of 70:30 or 50:50, depending upon their financial condition.

This share is important because the repayment of the loan (EMIs) as well as other payments on the property have to be made in this specific proportion.

• The next step comes in respect to the housing loan. Banks consider joint loan application only when co-owners are the co-applicants. This means co-owners need to jointly take the loan to contribute to their share of the property. Even the repayment through EMIs has to be done jointly in the same proportion in which the asset is owned.

Tax benefits

Overall there are two types of tax benefits that are available on the repayment of a housing loan.

1. Interest paid on the loan is eligible for a deduction up to Rs. 1.5 lakh per annum from the taxable income of the individual under Sec 24 when the property is self-occupied or it is one ownership property lying vacant.
2. The return of the capital of the loan along with the interest up to Rs. 1 lakh is included in the benefit under Sec 80C.

The planning in the entire issue has to be done in such a manner that all the joint holders are able to take the tax benefit and no part of the total repayment goes waste.

What is the advantage for joint home loan takers?

Joint holders can claim the maximum tax benefits individually. This means each holder can get a tax rebate of Rs. 1 lakh for principal repayment under Sec 80C and Rs. 1.5 lakh for interest payment under Sec 24.

Tax calculation

In order to divide tax benefits among the joint holders, there will have to be individual tax calculations for each of them.

Consider this example:

For two co-owners, the annual interest paid on the loan is Rs. 2.6 lakh and the capital repaid is Rs. 65,000.

Both have an equal share, which means they have a 50:50 ownership in the property.
Thus the benefits will also be divided equally between the two, with each of them claiming Rs. 1.3 lakh as a deduction of interest and Rs. 32,500 as capital repayment benefits.

Joint account

The repayment of a joint loan has to be made from a joint account owned by the co-applicants. Each of them needs to contribute his/her share to the account. But there are times when this is not possible and in case the payment is being made from just one person's account then there has to be a method whereby the other individual is contributing his/her share. This will ensure that the benefits are also available in an adequate manner and that there are conditions that are being fulfilled in the process.

Considering New Direct Tax Code

New borrowers need to keep an eye out for developments in the housing loan sector. While planning any housing loan benefit, they have to keep in mind the conditions mentioned in the New Direct Tax Code. This code, coming into effect from April 2011, eliminates the benefit of a housing loan. This means that if the code is passed in its present format, both the benefits on interest payment as well as capital repayment will not be available to co-applicants.