Everything You Need to Know About a Co-Applicant in a Home Loan and Tax Benefits

Adding a financial co-applicant can increase your loan eligibility and help you secure a higher loan amount when applying for a Home Loan. Additionally, a co-applicant can also enjoy tax benefits on the Home Loan if certain conditions are met.  

This article explores who a financial co-applicant is, the benefits of having one, how tax benefits can be availed by both applicants, and the steps involved in removing a co-applicant from a Home Loan. 

Who is a Co-Applicant in a Home Loan?

A co-applicant in a Home Loan is an individual who applies for a loan jointly with the primary applicant. The co-applicant shares the responsibility of loan repayment but does not necessarily have ownership of the property. Commonly, co-applicants are immediate family members, such as: 

• Spouse 
• Parents 
• Siblings 
• Children 

Note that friends or distant relatives usually cannot be co-applicants for a Home Loan. 

Benefits of Having a Co-Applicant in a Home Loan

Adding a co-applicant to your Home Loan application offers several benefits: 

1. Higher Loan Eligibility: Combining incomes with a co-applicant can increase your eligibility for a higher loan amount 
2. Lower Interest Rates: Some lenders may offer better interest rates for joint Home Loans  
3. Shared Repayment Responsibility: The loan repayment responsibility is shared, reducing the financial obligation on a single borrower  
4. Tax Benefits for Both Applicants: Both the primary applicant and the co-applicant can claim tax deductions on the Home Loan if they are co-owners of the property 
5. Increased Creditworthiness: When both applicants have good credit scores, it demonstrates a higher repayment capacity and can increase your chances of securing a loan at favourable terms 

Read Also: More Benefits of Adding a Co-applicant 

Can a Co-Applicant Claim Tax Benefits on a Home Loan?

Yes, a co-applicant can claim tax benefits on a Home Loan under the following conditions: 

1. Co-Ownership is Mandatory: To claim tax benefits, the co-applicant must also be a co-owner of the property. 
2. Home Loan Repayment Contribution: The co-applicant must contribute to the loan repayment to avail of tax deductions.  

Under the Income Tax Act, 1961, co-applicants can benefit from tax benefits in the following ways:  

• Under Section 80C, a co-applicant can claim up to Rs.1.5 Lakh per annum on the principal repayment 
• Under Section 24(b), a co-applicant can claim up to Rs.2 lakh per annum on the interest paid if the property is self-occupied  
• For a rented property, there is no upper limit for interest repayment deduction under Section 24(b)  

Having a co-applicant in a Home Loan can significantly increase your loan eligibility, offer shared repayment responsibility, and provide both applicants with tax benefits, provided they are co-owners of the property. Before applying for a joint Home Loan, ensure that both applicants understand their financial responsibilities and the eligibility criteria for tax benefits.