Know the tax benefits on a Joint Home Loan

What is a joint home loan?

A joint home loan is a mortgage taken by two or more individuals, usually co-owners of a property, to finance the purchase of a home. Commonly, spouses apply together, but other combinations like parents and children or siblings can also apply. In a joint home loan, all applicants share the responsibility for repaying the loan. The benefits include higher loan eligibility due to combined incomes and potential tax benefits for each co-borrower. However, all parties are equally liable for the loan, and default by one can affect the credit scores of all involved.

Joint home loan tax benefit

When purchasing a home, one of the most common ways to finance it is through a joint home loan. A joint home loan is when two or more individuals borrow money from a financial institution to purchase a property. Not only does this reduce the burden of paying a large sum of money individually, but it also comes with several tax benefits under sections 80C, 80EE, and section 24(b) of the Income Tax Act.

Conditions that need to be fulfilled before you claim joint home loan tax benefits

Before claiming joint home loan tax benefits in India, certain conditions must be met. Firstly, all co-borrowers must be co-owners of the property. Secondly, the tax benefit can be claimed in proportion to the ownership share of each co-borrower. Additionally, each co-borrower should provide their PAN card details when claiming tax benefits. It's essential to maintain proper documentation, including the loan agreement and ownership documents, to substantiate the claim. Non-compliance with these conditions may result in the denial of tax benefits or legal complications.

Tax benefit on joint home loan under Section 80 C

Section 80C of the Income Tax Act allows for a deduction of up to Rs. 1.5 lakh from the taxable income of an individual. In the case of a joint home loan, both co-borrowers can claim deductions separately up to the limit of Rs. 1.5 lakh each, effectively doubling the tax benefit. It is crucial to remember that this exemption also covers payments made for other investments, such as life insurance premiums and Public Provident Fund contributions (PPF).

Furthermore, according to income tax regulations, this deduction is only valid for completely developed properties, and must be self-occupied. You must check whether you qualify for this benefit before applying.

Deductions per section 24(b) of the Income Tax Act

Section 24(b) of the Income Tax Act allows for a deduction of up to Rs. 2 lakh on the interest paid towards a home loan for a self-occupied property. Each co-borrower can claim this deduction in a joint home loan. This means that both co-borrowers can claim deductions on the interest paid on the loan, up to a maximum limit of Rs. 2 lakh each per year.

The tax deduction under section 24(b) can be claimed by both the primary borrower and the co-borrower(s) in the ratio of their share in the loan. It is important to note that the deduction is available only on the interest component of the EMI, and not on the principal component. Additionally, the property for which the loan is taken must be self-occupied by the co-borrowers to be eligible for the tax deduction. If the property is let-out, you can claim the actual value without any upper limit.

However, the house's construction must be finished within five years of the loan's start date for this deduction to be valid. If not, the payout is reduced to Rs. 30,000 annually.

Tax savings under section 80EE

Section 80EE of the Income Tax Act provides an additional deduction of up to Rs. 50,000 on the interest paid towards a home loan. This deduction is over and above Rs. 2 lakh under section 24(b). However, this deduction can be claimed only by first-time home buyers. The loan amount should not exceed Rs. 35 lakh, and the property's value should be at least Rs. 50 lakh.

In the case of a joint home loan, both co-borrowers can claim a deduction of up to Rs. 50,000 each, provided they are both first-time home buyers, and the loan amount and property value fall under the prescribed limits.

Borrowers can benefit from joint home loans in a variety of ways. Before you apply for a joint home loan, there are a few crucial considerations.

The co-applicant(s) must be gainfully employed and have a regular income source, as they have to contribute to the EMIs. This can help in getting the best interest rate on the home loan. Furthermore, considering the income levels of co-applicants might differ, it is wise to divide ownership of the property in accordance with each person's annual income. The co-borrowers must also have separate life insurance policies. This reduces the burden on the other party if one applicant passes away.

**These deductions are applicable only if you choose the old tax regime. These benefits have been excluded from the new tax regime with effect from April 1, 2023.

Home loan tax benefits eligibility