Joint Home Loan can Tax benefits in Income Tax U/s 80C and 24B, with Automated Master of Form 16 Part B with 12 BA for F.Y.2015-16

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What is a joint home loan?

A joint home loan is a loan which is taken by more than one person.

Terms associated with Joint home loan?

Coowner: means a person who has a share in the property.

CoBorrower: A co-borrower is a person with whom you take the home loan jointly. In India, a home loan can have upto 6 co-borrowers. Usually a joint home loan is taken by spouses, or parent and child. You cannot take a home loan jointly with your friend or colleague or an unmarried partner. Usually banks insist co-owners to be co-borrowers of the loan. However, the reverse is not necessary.

Tenure of the loan: Period for which loan is taken

Documentation: A joint home loan requires both the applicants to furnish the necessary Know Your Customer documents. This includes address proof, ID proof, income proof and the bank statements of both the applicants, as well as the proof of co-ownership of the property.

Repayment: Although the loan is taken by more than one person, the EMI payment can be made fromonly one bank account which can be single or joint account of one of the borrowers. The borrowers can choose to share the number of EMIs between them in the whole year.

Who can be the co-borrower?

The rules says any six persons can take home loan jointly, but the banks and institutions have more restrictions co-applicants. The restrictions are as follows:

  • A Joint Home Loan can be taken by Husband and Wife or Parent and Child.
  • Friends cannot take Joint Home Loans.
  • In some case brothers are allowed to take the Joint Home Loans.

Tenure of loan depends on the co-borrowers.

  • If the co-applicants of the joint home loan are spouses, then the maximum loan tenure can be upto 20 years or 25 years, depending on the housing finance institution.
  • However, in case the co-applicants share a parent-child relationship or are siblings, then the maximum term is restricted to 10 years in most cases. In case of a joint loan taken by a parent and child, if the repayment is linked to the parent’s income, then the maximum loan tenure is restricted to the retirement age of the parent.

Banks insist that, co-owners must be co-borrowers for the Home Loans. It is not necessary that all the co-borrowers must be the co-owners of the house.

What are the liabilities of taking joint home loan?

All co-borrowers are jointly and severally liable to repay the loan.  It does not matter whether the payment is made in the normal course by only one of the joint borrowers as long as the full EMI is paid as per schedule. So if one of the borrowers refuses to pay the loan, has to file for insolvency or passes away, it becomes the co-applicant’s responsibility to settle the loan in full.

And do note that the repayment record on joint loans counts for your CIBIL score. The Credit Information Bureau (India) Ltd maintains information of all individuals’ payments relating to loans. It gives scores to individuals based on their credit history. Irregularity in payment by a partner or co-applicant can impact your eligibility in the future for a loan.

The co borrowers taking the loan should ideally take separate term life covers to reduce the financial burden on the other person(s) in case of their demise.

Also, if you are a co-borrower, you could perhaps draw up and sign an agreement with other co-borrowers (including your spouse) on splitting the liability. This will avoid any clashes in future

What does Tax benefits of Home Loan depend on?

Tax benefits on home loan can be be availed based on following :

  • For constructed house i.e house should NOT be in pre-construction stage. You can seek Tax Benefits only from the financial year in which the construction is complete.
  • Whether loan is taken for first house or house other than first house
  • Whether the house is self-occupied (means you are living in it) or not i.e. given on rent or vacant?
  • You can claim income tax exemption if you are a co applicant in a housing loan as long as you are also the owner or co owner of the property in question. A co-owner, who is not a co-borrower, is not entitled to tax benefits. Similarly, a co-borrower, who is not a co-owner, cannot claim benefits. Before you sign as a co-applicant in a home loan, make sure that you get a right to the property as well. Registering the house in joint names will get you additional tax benefits as mentioned earlier and your share in the property also becomes indisputable.
  • The tax benefit is shared by each joint owner in proportion to his share in the home loan. It’s important to establish the share for each co-borrower to claim tax benefits.
What are the Tax Benefits on taking home loan?

For claiming income tax deduction, the EMI amount is divided into the principal and interest components. The Indian Income Tax Act allows both Principal repayment as well as Interest repayment as eligible deductions from your income Principal can be claimed :

  • Up to the maximum of Rs. 150,000 under Section 80C. This is subject to the maximum limit of Rs 150,000 across all 80C investments such as EPF,PPF,Insurance Premiums etc.  Before FY 2014-15 the limit for 80C was  1.5 lakh.
  • Principal Repayment can be considered as a valid investment under section 80C only if it is made for a self occupied house or you are not living in the house  due to work
  • Interestcan be claimed:
  • As a deduction underSection 24 under the head Income from house property.
  • You can claim up to Rs 200,000 or the actual interest repaid whichever is lower. The limit before FY 2014-15 was 1.5 lakh
  • If the house is given on rent, there is no restriction on the interest amount.
  • There is no restriction ofSelf Occupied Property for claiming the tax break on interest paid under sec 24.
  • Co-owners and Co Borrowers can claim deductions in the ratio of ownership.
  • The certificate issued by the housing loan company, showing the split between principal and interest for the EMI paid, is required for claiming tax benefits.
What are other deductions available on your taking home?

While buying a house you have to pay stamp duty and registration charges. You can claim deduction on these expenses under Section 80C of income tax in the respective year

For self-occupied house you cannot claim deduction on municipal taxes, but for let-out property you can claim deduction for the municipal taxes also on your income from house property.

What are Tax benefits of Joint Home loan For One House?

The repayment of principal amount of the loan can be claimed as a deduction under section 80C up to a maximum amount of Rs 1.5 lakh individually by each co-owner. Before FY 2014-15 limit was 1 lakh.

Each co-owner shall be entitled to the deduction individually on account of interest on borrowed money up to a maximum amount of Rs. 2 lakh.  Before FY 2014-15 limit was 1.5 lakh.

If the house is given on rent, there is no restriction on the interest amount.

The tax benefits are according to the proportion of a loan.That is, if the ratio of the loan is 70:30, then a loan of, say, Rs. 50 lakh will be split into Rs. 35 lakh and Rs. 15 lakh and tax benefits on the interest/principal repaid will also be calculated based on this ratio.

Can you explain it with example?

Suppose Abhi Sharma(income of 6 lakh) and Nita Sharma (income of 4 lakh) have taken a home loan of 20 lakh with 10% interest Rate for 20 years for which EMI is Rs 19,300. For the first year Principal payment is 33,905  and interest payment is Rs 1,98,510. Tax Calculation for the three different scenarios is given below.

Tax Calculation for Abhi
Particulars With individual loan Without home loan 70% year 1 Split(Joint home loan)
Gross Income 6 lakh 6  lakh 6 lakh
Less: Housing Loan interest Sec 24 -1.5  lakh Nil -1.39 lakh
Total income 4.5L 6 lakh 4.6L
Less: Principal repayment -33, 095 Nil -23, 167
Taxable Income 4.2 lakh 6 lakh 4.4 lakh

 

Tax Calculation for Nita
Particulars With individual loan Without home loan 30% split(Joint home loan)
Gross Income 4 lakh 4 lakh 4 lakh
Less: Housing Loan interest Sec 24 -1.5 lakh Nil -59, 553
2.5 lakh 4 lakh 3.4 lakh
Less: Principal repayment -33, 095 Nil -9, 929
Taxable Income 2.17 lakh 4 lakh 3.3 lakh

Tax calculation for Mrs Sharma

To get the best out of the tax savings as seen with the above example, it is good to let the partner with the higher pay make a higher contribution towards the home loan resulting in a better tax benefit collectively.

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