Can both husband and wife claim income tax deduction for home loan repayment? Or, How do I claim tax benefit on a joint home loan? Or, Can both husband and wife claim housing loan benefits?
These are some questions with the common theme of joint home loan tax benefits in India that many would-be home buyers ask if both spouses planning to purchase a house together and take a joint home loan.
The idea is simple. It increases home loan eligibility that in turn means that they can buy a bigger house. In addition, it also reduces the EMI burden on both which otherwise would have been borne by just one person. Also, this is one of the easiest ways to get your home loan approved quickly from the bank’s perspective as it reduces the risk for them.
From a taxation angle, it can turn out to be a highly beneficial decision for both joint borrowers as both husband and wife will qualify for higher tax benefits. But to benefit from this joint set up of home loan and its repayment, you need to be properly aware of the tax rules regarding the same.
So let’s focus on the tax benefits for joint home loans in India.
You are already aware that home loans provide certain tax benefits. These benefits are available under Section 80C (for principal prepayment) and under Section 24(b) (for interest paid). But at times, there is some confusion about who among the two can claim the home loan benefit and how much tax benefit each person can claim with regards to their joint home loans.
Now for joint owners to get their share of tax benefits on joint home loan, all 3 (three) of the simple conditions listed below must be met:
- Condition 1: Both must be co-owners of the property – To claim tax benefits for a home loan, both must be co-owners of the property being purchased jointly. . Only then, will both individuals become eligible for tax deductions on the principal amount repayment and interest payment. In case the loan is taken jointly but only one person is listed as the owner in the property documents, then the other person (whose name is not listed as co-owner on property documents) shall not be eligible to claim tax benefits.
- Condition 2: Both must be co-borrower of the home loan – In addition to being the co-owner of the property, both individuals must also be registered as the co-applicants as per the loan documents. If one person is only listed as the co-owner but not as a co-borrower, then that person would not be eligible for any home loan tax benefits. The idea of putting this rule in place is that at times, a co-owner may not necessarily be contributing to home loan EMI repayment. Hence, he/she should not get the tax benefits of home loan repayment.
So combining the above two conditions, it is mandatory for a co-borrower in a home loan to be a co-owner of the property/house for claiming tax benefits. Unless this condition is satisfied, you cannot claim the tax benefits on the home loan.
And what about the 3rd conditions?
- Condition 3: Construction of property/house for which loan is taken must be complete – This is the final condition. You (or all co-owners cum co-borrowers can only claim tax benefits of the home loan after the construction of the property is complete. As for the tax benefits for under-construction property, they are not available till the time construction is complete and/or possession of the house is taken. The prior period interest paid on home loan till before the completion of the property can be claimed in 5 equal instalments starting from the financial year in which the construction has been completed.
So if we combine all 3 conditions that the Co-Borrowers (who are also co-owners) can begin claiming tax benefits from the financial year in which the construction of the house is completed. I hope now you understand the difference between co-borrowers vs. co-owners when it comes to home loans.
Unless you satisfy the basic condition i.e. you should be a co-borrower of the loan, as well as a joint owner of the property, you cannot claim the tax benefits on the home loan.
When these 3 conditions are met, the owner-borrowers can claim the following tax benefits:
- Principle Repayment (Joint Home Loans): Each co-owner can claim a deduction of maximum of Rs 1.5 lakh towards repayment of the loan principal under Section 80C. So for example the two co-owners have equal share in property and are co-borrowers and repay a total principal of Rs 3.5 lakh, i.e. Rs 1.75 lakh each, then they can claim a maximum benefit of Rs 1.5 lakh each under Section 80C as that is the limit of the available deduction.
- Interest Payment (Joint Home Loans): Both Joint owners can avail additional deduction of up to a maximum of Rs 2 lakh each on the interest paid towards the home loan EMIs. The total interest paid shall be allocated between joint owners on the basis of their percentage share in ownership. So let’s say you and your spouse pay a total of Rs 4.5 lakh in interest over the year. Then assuming you both have a 50:50 share in the self-occupied property, both of you can claim Rs 2 lakh each maximum in your tax returns. In the case of a let-out or a rented property, there are no restrictions on the limit of interest that can be claimed as tax benefit by the borrower of a home loan.
One point regarding the ratio in which the tax benefits can be claimed.
This depends on the ratio in which both borrowers are servicing the home loan. And it may or may not necessarily be in the same ratio (or 50:50) for both. Its possible that only one of the joint borrowers is servicing the home loan. In that case, he alone can claim the benefits for such repayment fully (but within the limits of Section 80C and 24B, without the other co-borrower claiming any benefit for himself/herself). So in general and to address your question about the ratio in which the tax benefits of home loan can be claimed, the answer is that the ratio may not necessarily be the same as the actual share of the joint borrowers in the co-ownership of the house. So husband and wife may be equal 50:50 co-owners of the property but servicing the loan in 75:25 ratio. So the tax benefits available will be in the ratio of 75:25 and not 50:50 in that case.
So that’s it about how to claim tax benefits on joint home loan.
Here are a few more articles about home loans and related aspects:
- Best time to prepay home loans
- Should you buy a house as home loan rates fall?
- Home loan EMI calculator (excel download)
- Rs 25 lakh home loan EMI – and – Rs 30 lakh home loan EMI – and – Rs 40 lakh home loan EMI – and – Rs 50 lakh home loan EMI – and – Rs 1 crore home loan EMI –
- How to benefit from home loan rate cuts?
- Why home loan principal gets paid off slowly initially?
- How to quickly repay a Rs 50 lakh home loan?
- Don’t use all savings for a home downpayment
- How shorter tenure can save you money in home loans?
- Smart home loan management
- How much home loan can you get?
To summarize, the tax benefits for interest payment and principal repayment of the home loan can be claimed only if one is a joint owner as well as a co-borrower servicing the home loan. In addition, the construction of the property must be complete.
Banks and home loan lenders are generally more likely to approve joint home loans application as it leads to a reduction in risk due to the shared responsibility of the home loan repayment responsibility. For borrowers, it works out well too as by having your spouse (husband or wife) as the co-owner and co-borrower, you can reduce your tax outgo on home loan repayment. I hope you found this article on details about the tax benefits on home loan for joint owners in India 2021 useful.