A joint home loan between say husband and wife, is a widely used idea. It helps in 2 ways. One, a higher loan amount based on 2 incomes. Two, both can claim tax benefits leading to a higher overall tax deduction too.
However, some of the borrowers are not aware of the rules governing the claim of such benefits on joint home loan.
There are 2 key conditions that need to be fulfilled to be able to claim.
- Both the parties should be co owners of the property
- Both the parties should be co borrowers in the loan.
Only when these conditions are satisfied, you are eligible to claim the tax benefit on the home loan.
What does this mean?
If you have made your spouse only a co-borrower to maximise loan eligibility but not a co-owner, s/he will not be able to claim tax benefits. Simple.
Similarly, if she is a co-owner but not a co-borrower, no claims can be made for tax deduction.
You must also remember that the tax benefits are claimed only in the ratio of the ownership of the property as specified in the purchase agreement.
If there is no ownership ratio defined, the simple 50:50 rules may apply.
Now, if one of the spouse pays up 75% of the EMIs, the tax benefit is restricted to 50% only, in line with the ownership ratio.
What are the limits on claiming tax benefits for home loan payments?
There are 2 components to your EMI payments – Principal and Interest. Principal repayment can be claimed within the overall limit of upto Rs. 1.5 under Section 80C of the Income Tax Act.
Interest repayment can be claimed upto Rs. 2 lakhs under Section 24 of the Income Tax Act, assuming you have one self occupied house property.
Both spouses can claim these benefits respectively, subject to the limit of actual amount paid via EMIs or any principal repayments.
There is yet another problematic practice with regards to claiming tax benefits on joint home loan.
Let’s assume that both spouses are co-owners as well as co-borrowers. However, only one spouse is making the entire EMI payment. There is no payment coming from the second spouse towards the property yet s/he claims a tax deduction in the Income Tax Returns.
This is incorrect.
To claim tax benefits by both spouses, each of them has to make respective payments. No payment, no tax benefit.
Further reading: How to save taxes smartly?