Claim Tax Benefits on Joint Home Loans

Home loan applications have a greater chance of success if it is a joint application, which means that you as an applicant will have another person petitioning for the loan with you. These co-applicants are also known as co-borrowers of the loan. Any bank or financial institution is more likely to accept a home loan application with more than one borrower, knowing that more than one individual will be responsible for the repayment.

For the borrowers, it allows repayment flexibility and shared risks and responsibilities of the loan, apart from maximising their chances of getting approved for their desired home loan amount.

In addition to other benefits, joint home loans make the borrowers eligible for joint home loan tax exemptions as well.

To claim tax benefits for joint home loans, the following needs to be kept in mind:

Joint ownership does not automatically make you eligible for joint home loan tax exemptions

Jointly holding property in one’s name does not make an owner eligible for the tax benefit. The owner of the property must essentially be a co-borrower of the loan used to purchase the property to avail of said tax benefit.

The housing loan interest claim for joint owners has an individual upper limit of Rs.2 lakh

The interest paid on a housing loan that has been jointly borrowed can be claimed as a tax rebate. The owners can claim the interest pay-out in proportion to their share in the property. This means that a co-borrower with a thirty per cent share in the property can only claim thirty percent of the total interest pay-out while calculating their tax claim.

However, the maximum claim for interest payback can only be up to Rs.2 lakh. It is therefore prudent to allow the co-borrower(s) in the higher tax bracket to hold a larger share in the ownership so that they may claim tax benefits, in percentages corresponding to their ownership.

The tax benefit claimed cannot be larger than the amount paid as interest by the individual borrower making the claim.

In case only one of the borrowers is claiming the tax benefits, they require a ‘no objection certificate’(NOC) from their co-borrowers, stating that they forfeit their right to claim tax benefits for the loan and allow the applicant in question to avail the tax rebate.

Section 80C allows additional tax benefits for applicants of joint housing loans

The principal amount borrowed can also be claimed back to a maximum of Rs.1.5 lakh under section 80C. In addition to this, registration of the house and the stamp duty paid can also be claimed under section 80C.

However, the stamp duty and registration can only be claimed within the financial year that they have been paid.

Tax benefits can only be claimed on completely constructed properties

Tax benefits can only be claimed when the property has been completed within the same financial year. Interest paid out to the bank or the financial institution in the final phase of construction can however be claimed in five equal instalments in the year that the property is due to be completed and handed over in the possession of the owners.

Since co-borrowing implies sharing of repayment responsibilities amongst the co-applicants of the joint home loan, it is an attractive proposition for lending institutions and banks. The maximum number of co-applicants on a particular housing loan can be up to six.

It is not uncommon for family members to apply for joint housing loans, both to ease repayment for the borrowers and to increase the collective credit score of the borrowers and thereby increasing the chances of a successful subsequent home loan application.

However, care must be taken to ascertain that the lending institution allows the co-borrower combination before making the loan application. Certain lending institutions do not allow certain co-borrower combinations.

The details of the percentage ownership of the house being purchased should be worked out before making a joint housing loan application. Such diligent financial planning allows the borrowers to collectively claim maximum tax benefits while jointly purchasing a new property.