How Can You Save Taxes on Joint Home Loans?

Last Updated : June 12, 2019, 10:33 a.m.

Buying a house and repaying the loan together is what we call true partnership. In today’s time when women and men are working professionals, people have found confidence in themselves that they can take a home loan together and share the financial burden equally. Those who have decided to get married and planned to buy a house together must be looking for options where they can save. A home loan is in itself a great tax saving option which extends to joint home loans as well. To start with, look at the conditions under which a couple can take a home loan and then save tax on it.

What is the Eligibility for Joint Home Loan?

Below are the criteria or conditions under which a joint home loan can be availed.

• Joint Home Loan can be taken by a minimum of two people and a maximum of six people.
• A co-borrower may or may not be the co-owner of the property. But, lenders usually prefer a co-borrower to also be a co-owner of the property. So, ownership does not come along with the borrower.
• Repayment of a joint home loan is to be done from the bank accounts of each borrower.
• Only married couples or family members (parents or siblings) are allowed to take joint housing loans.

What are the Tax Benefits on Joint Home Loans?

As mentioned above, home ownership does not come along by just being the co-borrower of the home loan. When you go for a joint home loan with your spouse in the ratio of 50:50, then the tax benefit will also be shared equally. One can avail tax benefit on home loan up to Rs 1.5 lakh under Section 80C and 2 lakh under Section 24.

How can couples take benefit of tax exemption on a home loan?

As you can read above, joint home loans is a great choice to save on tax. Both co-borrowers of the property can avail tax exemption benefit if they are both co-owners of the property as well. So, to get maximum benefit on a home loan, you may make your spouse or daughter or son the co-owner as well as co-borrower of the loan.

Also, the ownership ratio in a property decides how much tax benefit you can get. Here is an example for the tax benefits for loan repayments will be split in the ratio of the share in the home loan.

Property value: Rs 1 crore
Ownership share: 60% (husband), 40% (wife)
Loan: Rs 60 lakhs

Amount to be brought in by husband: Rs 60 lakhs
Less actual contribution by husband: Rs 20 lakhs
Husband’s share in the loan: Rs 40 lakhs

Amount to be brought in by wife: Rs 40 lakhs
Less actual contribution by wife: Rs 20 lakhs
Wife’s share in the loan: Rs 20 lakhs

Interest Payment: The maximum limit of Rs 1.5 lakhs on interest paid will apply individually to both of you (i.e., the total deduction will be limited to Rs 3 lakhs).

Principal Repayment: The tax benefits on the principal will be shared in the ratio of 2:1 between the husband and wife since that is the share of the loan for husband and wife. It falls under the tax exemption category Section 80C where the limit is Rs 1 lakhs for each of you.

Thus, the dual home loan tax benefit may be opted if both share the property ownership and become co-borrowers of the home loan. So, husbands can take joint home loan with wife or vice-versa. Also, you can take joint home loan with father or on your mother’s name.

Tax Benefits You Can Avail of While Buying an Under-construction Property

You can avail the tax deduction of the interest amount paid during the pre-construction phase in five equal installments for the next 5 years after the construction is completed and the property is ready for possession. 

Let us make you understand tax benefits in simple terms. Let’s say you have paid a total of 4,00,000 as the interest during the under-construction phase. So, you and your co-applicant can avail of a total tax benefit of INR 80,000 each year for the next five years. This tax benefit will be shared equally between you and your co-applicant/s.

However, there’s a catch to it. The total tax benefit on the interest paid will only be INR 2,00,000 a year if you decide to occupy the property before 5 years from the date of its completion. To avail more tax benefits, you will have to stay out of your completed property for at least five years.

Will You Benefit from Investing in an Under-construction Property?

• Under-construction properties are generally more economical than completed ones, so this will automatically make your EMIs cheaper as the required loan amount would be lower.
• Having lower EMIs at your disposal means a lesser amount of interest. 

How to Claim Tax Benefits on Joint Home Loans?

You can claim all the tax deductions by filling the investment declaration form. In this form, you will have to fill a few basic details as well as home loan details. Submit this duly filled and signed form to your organization’s HR Manager. You will get your tax deductions once your submitted details are verified successfully.