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Tax Benefits on Joint Home Loan: Everything You Should Know

Updated on: 15 Feb, 2024 04:56 PM

Owning a home is a significant financial decision with ongoing costs beyond the initial purchase. While home loans make homeownership more accessible, they're a long-term commitment with monthly EMIs that impact your budget. Choosing the right home that fits your needs and lifestyle, exploring loan options with competitive rates and down payment plans, and understanding the financial commitment are crucial for steering affordability responsibly. Remember, managing EMIs effectively requires careful budgeting, and strategies like prepaying or considering shorter loan terms can help ease the burden.

What is a Joint Home Loan?

A joint home loan is a housing loan that a person jointly takes with another person, and the repayment is made with equal responsibilities. The co-applicants can be family members, including spouses, parents, siblings, and offspring.

A joint Home loan is beneficial in many ways. First, your loan amount increases; secondly, the tax burden decreases as it is shared between the two. But, more than anything, the foremost benefit is the tax benefits that both parties can enjoy.

Individuals can enjoy tax benefits in obtaining a home loan under the Income Tax Act Section 24(b), Section 80 (EE), Section 80EEA, and Section 80C, 1961. In addition, a joint home loan also brings many tax benefits, resulting in significant savings.

What are the tax benefits available for a Joint Home Loan?

You must be a co-applicant and a joint owner to claim tax benefits on a joint home loan. There are three types of joint home loan tax benefits that you can avail of following the Income Tax regulations:-

Section 80C: A tax deduction of up to Rs. 1.5 lakhs can be claimed every year on the principal component of the housing loan until loan maturity. This exemption also contributes to other investment schemes like LIC and PPF. However, a tax deduction under Section 80C is available only for an entirely constructed house. Also, the property should be self-occupied.

Section 24 (b)

  • For Self Occupied: An annual tax deduction of up to Rs. 2 lakhs can be claimed by you and the co-owner each under this section. This claim can be made every year on the interest component of the home loan until the loan maturity. The only condition is that the house construction must have been done within five years of the loan commencement. If the condition is not met, the tax benefits will be reduced to Rs. 30,000 per annum.
    For instance, Mr. Das and his son are co-owners of a property and paid Rs. 5 lakhs as interest against the home loan. In that case, the father and son can avail of Rs. 2 lakhs each as an annual tax benefit.
  • For Rented Property: If Mr. Das and his son decide to rent out their co-owned property on which a home loan has been taken. In this situation, the ratio at which they will share the annual tax benefit will remain the same. They will be eligible for an annual tax benefit of Rs. 1 lakh each.

Section 80 (EE): If you are a first-time borrower, an additional Rs. 50,000 of tax benefits can be claimed on interest repayment by each member. However, the property value should not be Rs. 50 lakh or less. Also, the amount of loan taken should not exceed Rs. 35 lakh. Additionally, Section 80 (EEA) has been introduced.

Additional benefits of taking a Joint Home Loan

  • Easy Loan Approval
    A loan approval on higher amounts requires many conditions to fulfill, which makes it easy in the case of a joint home loan. For instance, you wish to buy a house for Rs. 1 crore and apply for a home loan of Rs. 75 lakh. The EMI calculation turns out to be around Rs. 64,000, in this case, for a tenure of 30 years. If your monthly salary is 60,000, the home loan would not be granted here.
    On the other hand, having a co-applicant along with you makes the situation manageable. For example, if the co-applicant's salary is 70,000, then your joint income will be acceptable by the bank.
  • Reduction in Stamp Duty
    In some states such as Delhi, UP, Haryana, and many more, taking a joint home loan with a woman, i.e., your wife, mother, daughter, or sister, offers more benefits as a lower stamp duty rate is applied for property registration.

Confused about maximizing tax deductions on your joint home loan? Our Tax Advisory Service can help. Get expert guidance on claiming interest, principal repayments, and different ownership ratios.

What are the conditions for availing of Tax Benefits on a Joint Home Loan?

Individual Must Be One of the Property’s Co-Owners

You should be the owner of the property to receive the tax benefits on a joint home loan. In many instances, it has been observed that the loan is taken jointly, but the borrower is not the owner of the property. In these cases, you won’t be able to claim tax benefits.
Furthermore, the joint owner cannot claim equal tax benefits in case of repayment of the principal amount or interest paid against the loan. For instance, if the interest amount repaid against the loan is Rs. 105,000 and the principal amount repaid is Rs. 50,000. The joint owners can divide the amount per their ownership ratio and claim the tax benefits separately.
However, they cannot separately claim tax benefits on the entire sum of Rs.1,05,000. If one of the two joint owners wants to claim the deduction on the complete amount, then the claimant must obtain the No Objection Certificate or NOC from the co-borrower.
Additionally, the deductions against stamp duty and registration must be claimed within the same financial year.

Individual Must Be One of the Loan’s Co-Owners

You should be one of the applicants in the loan documents. Owners who are not loan borrowers and do not contribute to the EMI may not be eligible to claim the tax benefits.

Property construction must have been completed.

Tax benefits can only be claimed once the property construction is completed. Tax benefits cannot be claimed for an under-construction property. However, the interest paid during the completion of the property can be claimed in five equal installments starting the year construction is completed. These tax advantages can be claimed from the start of the fiscal year in which the construction was completed.

What is the key point to take care of while claiming tax benefits on a Joint Home Loan?

  • The home loan taken against the home must be taken under the name of two owners.
  • The tax benefits claimed are divided between you and the co-owner.
  • This division of claimed tax benefits is based on the ownership ratio of the loan.
  • The ownership ratio should clearly be mentioned in papers and expressed in percentages.

What is the eligibility and documentation required for Joint Home Loan?

Eligibility: To apply for a joint home loan, the applicant should be a co-applicant or a co-owner. It is essential to know the difference between these two. The co-applicant may not necessarily be a joint owner of the property. The co-applicant can be a salaried or, self-employed, or NRI. On the other hand, a co-owner is a joint property owner and should also be a co-applicant of the home loan. These can be family members, including spouses, parents, siblings, and/or offspring.

Documentation: To apply for the process of a joint home loan, the applicants need to submit the following:-

  • A Copy of the Permanent Account Number (PAN)
  • Income proof
  • Address proof
  • Property documents
  • Bank statements

Also, to claim tax benefits on a joint home loan, each party must submit a co-applicant declaration form specifying the same. Also, Taxpayers who want to claim the tax deductions on a joint home loan must get a No-Objection Certificate (NOC) from other members in which they clarify that they would not claim any tax benefits on that specific amount. The interest and principal payment percentage should be clearly mentioned in the NOC.

Frequently Asked Questions

Q- Why should I take a joint home loan?

  • A joint home loan increases the chance of getting a higher loan amount.
  • The chances of getting the loan approved by the lender also increase.
  • Both of the applicants can enjoy tax benefits.

Q- Who can apply for joint home loan?

Only close relatives, spouse, parents, siblings or children can be co-borrowers in a joint home loan scheme.

Q- What is the benefit of a home loan with working parents/spouses?

This situation helps you pool a high income and apply for a higher home loan. Additionally, the burden of repayment is reduced. Additionally, if you take a home loan with parents nearing retirement age, the lender might offer you a longer tenure.

Q- What is the benefit of a home loan with a non-working spouse/parents?

If you take a joint home loan with a non-working spouse/parents, you can get benefits on lower stamp duty and interest rates.

Q- How many co-applicants can apply for a home loan?

A maximum of six co-applicants can apply for a home loan.

Q- Can both husband-wife take a joint home loan?

Yes. The condition is both should be earning and be the co-owner of the property.

Q- How much loan can I get on applying for a joint home loan?

This depends on the co-applicant's income level, property value, and income. A maximum amount of Rs. 100 Cr can be borrowed.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.