Taxation Benefits of Joint Home Loan in India

Tax saving is an important annual goal of all salaried and business people. You can save tax by taking a home loan and investing in buying a property. When it comes to home loans, you can take an individual home loan or a joint home loan. In the post, we will see how you can avail additional tax benefits of joint home loan and tax benefits of joint ownership of property in India.  Housing loan interest exemption for joint owners is an important element you need to know.

In a joint home loan that you can take with a parent, spouse or son, both co-borrowers can claim tax deductions. Each co-borrower can claim tax benefits in proportion to their share in the loan. Read on for details about tax benefits on home loan for joint owners.

1. Tax Benefits of Joint Home Loan On Principal Amount

Under Section 80C, each joint owner of the property for which they have taken a joint home loan can claim a deduction of maximum Rs, 1,50,000 towards repayment of the principal amount, during each financial year.

2.  Tax Benefits of Joint Home Loan on Interest Paid on Self-Occupied Property

When it comes to deduction of interest on housing loans in case of joint ownership for a self-occupied property, there are interesting benefits under Section 24.  Each co-owner of the property for which they have taken a joint home loan can claim a deduction of maximum Rs. 2,00,000 towards repayment of interest on the home loan during each financial year. The total interest paid is divided among the co-owners according to the ratio of their ownership. For example, if two brothers have taken a joint home loan and purchased a house with a 50:60 share in the property, and the total interest paid in the financial year is Rs.5,00,000, then each of them can claim Rs. 2,00,000 rebate.

3.  Tax Benefits of Joint Home Loan on Interest Paid on Rented Property

There are also added tax benefits on home loan for joint owners for rented property. The rental income would be divided between the owners for the sake of computing income tax, and each co-owner can get IT benefits as per the tax slab rate that they individually fall under. 

Individuals who receive rental income for a joint property can also get a deduction of interest on housing loan in case of joint ownership. The loss from house property (where the interest paid exceeds the rental income), is capped at Rs. 2,00,000 for each FY, for each individual. Any loss in excess of Rs. 2,00,000 would be carried forward to future years. This is an important benefit of a joint home loan. 

See below to understand with an example.

4. Taxation on Capital Gains From Sale of Joint Ownership Property

If an individual sells one house and buys another house, then, as per section 54, the amount invested in the new house would be reduced from the taxable capital gains on the sale of the old house. This benefit also gets doubled in case of jointly owned property. Firstly, the capital gains will be computed separately for each co-owner. Secondly, each of the co-owners can get benefits in terms of taxable capital gains if they invest in buying another house within said time.

5. Benefit Under Section 54EC

To save on taxable capital gains when we sell a property, we can invest the proceeds of the sales in specific bonds, such as National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC). Under Section 54EC, one can claim a tax deduction of up to Rs. 50 lakhs. Again, if the property is jointly owned, then each co-owner can invest separately in such bonds and each can claim Rs. 50 lakhs deduction in IT returns.

Who Can Claim Tax Benefits in Joint Home Loan?

The Co-applicant Should Be Joint Owner

If a co-applicant is not the joint-owner of the flat, then they cannot claim tax benefit, even if they are paying EMI. Under Section 26, in case of joint ownership of any house property, you are taxed as an individual with respect to your share in the property.

The Co-applicant Should Be Paying EMI

If the co-applicant is a joint-owner, but not paying EMI, then they cannot claim tax benefit. In such a case, whoever is paying the entire loan instalment can claim the entire interest paid.

Apart from the above two conditions, it is also necessary that the construction of the property must be completed in order to claim the tax benefits for a joint home loan.  Tax benefits cannot be claimed for a property that is still under construction, but any expenses prior to completion can be claimed in five equal instalments starting the financial year in which construction is completed.

How to Repay?

The repayment of joint home loan has to be made through one cheque or ECS. It can be made from a single account or a joint account.

The number of EMIs can also be shared by the co-borrowers, where one of them pays a certain number of the instalments, and the other one pays the rest.

Enjoy Enhanced Benefits in a Joint Home Loan

So as we can see, not only the loan eligibility gets enhanced in a joint home loan, but the income tax benefits are also higher if you jointly take a home loan and jointly own it.  Some of the tax benefits are almost doubled and housing loan interest exemption for joint owners can be availed even if you have rented out the property.