Tax Benefits on Home Loan for Joint Owners

Section 26 of the Income Tax Act 1961 enables each co-owner to fully exhaust their deduction limits under house property income. Every deduction available under the head house property can be claimed by both co-owners separately. Using this provision, a couple can claim up to ₹4 lakhs interest deduction on self-occupied property, and ₹3 lakhs principal repayment under the old regime, when they are co-owners and co-borrowers.

Conditions to Claim the Tax Benefit on the Property

1. You must be a co-owner of the property– To be able to claim tax benefits for a home loan, you must be an owner of the property. Many a time, a loan is taken jointly, but the borrower is not an owner as per the property documents. In such a case, you may not be able to claim tax benefits.
2. You must be a co-borrower for the loan– Besides being an owner, you must also be an applicant as per the loan documents. Owners who are not borrowers and do not contribute to the EMI shall be devoid of the tax benefits.
3. The construction of the property must be complete – Tax benefits on a house property can only be claimed from the year of completion of the property. Tax benefits are not available for an under-construction property. However, any interest before completion of construction can be claimed from the year in which construction is complete in five equal instalments .

Benefits on Joint Home Loan - In New Regime

If the co-owner of a house property opts for the new regime, then the benefits under Section 80C, 80EEA, and 24(b) for interest expenses incurred on self-occupied property are not available as a deduction.

However, there is no restriction on deducting interest expenses on let-out property by the joint owners.

What are the Tax Benefits?

1. For a self-occupied property, each co-owner, can claim a maximum interest deduction of Rs. 2,00,000 in their Income Tax Return. 
2. Each co-owner should also be a co-applicant in the loan.
3. The total interest paid on the loan is allocated to the owners in the ratio of their ownership. It goes without saying that the total interest claimed by the owners/borrowers cannot exceed the total interest paid for the loan. 

For example, Rahul and his father bought a house on loan and paid Rs 4.5 lakh in interest. They have a 50:50 share in the property. Rahul can claim Rs 2 lakh in his tax return, his father can also claim Rs 2 lakh.

• For rented property, there is no limit on interest that can be claimed as a deduction; however, the set-off of losses against other heads of income is restricted to Rs. 2 lakhs.

For example, if the rental income is Rs. 7.5 lakh, Interest on the housing loan is Rs 12 lakh, the co-owner's share is 80%, and Salary income is Rs 15 lakh. Total Income will be as follows

Thus in the above example, each co-owner will get deduction of interest equivalent to the percentage of ownership in the property, you will observe that excess loss over Rs 200,000 cannot be adjusted during the year and will be carried forward to next year, and such loss in next year will be eligible to set off only against income from house property.

1. Each co-owner can claim a deduction of a maximum of Rs 1,50,000 towards the repayment of principal under section 80C. This is within the overall limit of Rs 1,50,000 of Section 80C.
2. Each co-owner can claim a deduction of the stamp duty registration charge of Rs 1,50,000 each towards the payment under section 80C. This is within the overall limit of Rs 1,50,000 of Section 80C.

Therefore, as a family, you will be able to take a larger tax benefit against the interest paid on the home loan when the property is jointly owned and your interest outgo is more than Rs 2,00,000 per annum. 

There may be a situation where you are paying the entire loan instalment, and the co-borrower is not contributing any payments. In such a case, you may claim the entire interest as a deduction in your Income Tax Return.

Deemed Ownership

Section 27 of the Income-tax Act explains the scenario of Deemed ownership. When an Individual transfer his property for inadequate consideration 

1. To his or her Spouse.
2. To a minor child (not being a married daughter).

The person transferring such property will be deemed the owner of the property as per the Act.

Illustration:

1. Suppose a Husband (a salaried individual) buys a house property in Joint name with his wife (a Homemaker). The husband is the sole earner and pays the entire consideration for such acquisition. 
2. Now he lets out such property for rent. Now the question is, since the wife is also 50% owner of the property, can 50% of such rental income be shown in the wife's income tax return? 
3. Since the wife has no taxable income, this helps in paying no taxes on such 50% rental income. 
4. In such cases, it is deemed that the entire property belongs to the husband and rental income needs to be declared as his income in his ITR only since the entire consideration for such property purchase was paid by the husband. This is irrespective of the fact that the 50% of the rental income is earned by the wife.

Can There Be a Change in the Ratio of Tax Benefits on Home Loans for Joint Owners?

Both individuals need to be co-owners of the property to avail tax benefits. The joint owners can claim a tax rebate on their proportion of share in the house property. It means that a joint owner can consider his/her spouse’s repayment capacity when planning the share of a home loan.

Thus, if joint owners are equal, but their loan share is 60:40, the tax benefits will also be shared in the same ratio. If this ratio is changed to 70:30, even tax benefits will change accordingly.