Are you planning to buy a home? Are you falling short of funds even after considering the maximum individual home loan you can get? A joint home loan can be the answer for you. It not only increases your home loan eligibility but also offers tax advantages. But before jumping on it, you should know pros and cons of a joint home loan and whether you really need it. In this article, we tell you everything you need to know about Joint Home Loan Eligibility and Joint Home Loan Tax benefit.
What is a Joint Home Loan?
A joint home loan is nothing but simply a home loan which is taken by more than one person. You can apply for a joint home loan by adding a co-applicant or co-borrower in your application.
Rules regarding Co-Applicants
Who can be a co-applicant?
- A co-applicant or co-borrower in a joint home loan can be your spouse, parents or siblings.
- A friend or colleague cannot be a co-applicant.
Tenure of loan varies with the type of co-applicants:
- If co-applicants are husband and wife, the maximum tenure of joint home loan can be upto 25 years, depending on policies of the lending institution.
- In case, your co-applicant is either of your parent or your sibling, the maximum tenure allowed for your home loan would be 10 years in most cases. Also, if the loan repayment is linked to your parent’s income, maximum tenure would be restricted to the retirement age of your parent.
Difference between Co-Owner and Co-Applicant
Do not confuse between the terms co-owner and co-applicant/ co-borrower. A co-owner is someone who has a share in the property while a co-applicant/co-borrower has joint liability in a home loan. Few banks insist that co-owners should also be co-borrowers in home loan while reverse is not true.
Advantages of Joint Home Loan
Joint Home Loan Eligibility
The biggest advantage of taking a joint home loan is that your joint home loan eligibility increases as the bank will add total income of all applicants to calculate the joint home loan eligibility. Apart from income, company’s reputation is also considered while calculating loan eligibility. You should compare different loan offers if you want to avail maximum loan that you are eligible for.
You can estimate your joint home loan eligibility by feeding total income of co-applicants in this home loan eligibility calculator.
Joint Home Loan Tax Benefit
Tax benefit on a joint home loan can be availed individually by all co-owners of the property on both Principal payment (under section 80C) and Interest payment (under section 24) as per the following terms:
- Only co-owners who have taken joint loan can claim tax deductions in the ratio of ownership in the property.
- Principal Repayment
- Maximum tax deduction allowed is upto Rs. 1,50,000 (Rs. 2,00,000 for senior citizens) under section 80C of IT Act, subject to maximum limit of Rs. 1,50,000 across all investments (such as PPF, EPF, Tax-Saving FD, Insurance Premiums etc.) under section 80C.
- Tax deduction for principal repayment allowed only if it is made for a self-occupied house or if you are not staying in the house because of the nature of your work.
- Each co-owner can claim deduction on principal repayment amount of upto Rs. 1.5 lakh individually.
- Interest Repayment
- Interest repayment of home loan can be claimed under section 24 of IT Act under the head “Income from house property”.
- In case you are staying in your own house, maximum tax deduction allowed towards interest repayment is Rs. 2,00,000 or actual interest whichever is lower.
- Each co-owner can claim tax deduction on interest repayment upto Rs. 2,00,000 individually.
- In case, you have rented out your house, you can claim deduction on entire interest amount without any limit. However, you have to add rent income in your total income, in the proportion of your ownership.
- To claim home loan tax benefits, you require principal-interest certificate from the bank.
- Under Construction House – If you are buying an under construction house, you cannot claim tax benefits until the completion of the house.
- Stamp Duty and Registration Charges – When you buy a house, co-applicants of joint home loan can claim stamp duty and registration charges under section 80C in the proportion of their property ownership in the respective financial year.
- Property Tax – For self-occupied house, you cannot claim deduction on property tax. However, if the property is rented out, you can claim tax deduction on property tax under income from house property under section 24.
Read our in-depth article on Home Loan Tax Benefit, to know more about tax deduction rules on home loans for self-occupied house, rented house, second home and under-construction property.
|Tax Treatment||Situation 1||Situation 2||Situation 3|
|Ownership & Loan Applicants||Property & Loan in Single Name||Property and Loan are in Joint Names||Property in single name and loan is availed in Joint Names|
|Principal Repayment||Deduction allowed under section 80C to the single owner, subject to a limit of Rs. 1.5 lakh.||Deduction allowed under section 80C to the single owner, subject to a limit of Rs. 1.5 lakh per owner.||Deduction under section 80C available only to property owner, subject to a limit of Rs. 1.5 lakh.|
|Interest Repayment (for self-occupied property)||Deduction allowed under section 24 to the single owner, subject to limit of Rs. 2 lakh.||Deduction allowed under section 24 to the single owner, subject to limit of Rs. 2 lakh per owner.||Deduction under section 24 available only to the property owner, subject to limit of Rs. 2 lakh.|
As seen above in the illustration, it is important that both property and home loan are in joint names (Situation 2) if you want to avail joint home loan tax benefit.
- Lower Stamp Duty – In many states, the stamp duty for jointly owned properties is less than that of properties individually owned by a male owner.
- Reduces Succession issues – If the property is jointly owned by husband and wife, they can nominate each other. In case of any untoward event of demise of any of the spouse, the surviving partner will become the owner of the property.
Repayment of Joint Home Loan
Repayment of home loan is the joint responsibility of co-applicants. Either of them can pay the home loan EMI or they can create a joint account to make payments. In case of joint account, each co-applicant can contribute his share of EMI in the proportion of his ownership in the property.
Disadvantages of Joint Home Loan
- Income tax on second home’s rent – Once, you have taken a joint home loan on your first house and in future if you buy another house, one of them will be treated as self-occupied and the other one will be treated as rented out even if it is not. In case, you rent out your house, you have to add rental income in your total income. In case the house is not rented out, you still have to consider deemed rental value based on market rate and add it to your income. You can claim interest repayment deduction and pay tax if you have net profit under the head “income from house property”, i.e. (Rent-30% standard deduction towards maintenance-Interest Repayment).
- Wealth Tax on Second House – One house is exempted from wealth tax. However, if you buy a second house, you have to pay wealth tax on one of the houses. You can, however, deduct the loan amount while calculating your taxable wealth.
- Liquidity Problems – In case of a joint home loan, you may not be able to sell your house when you may need it. You would have to take concurrence from other co-applicant(s).
Frequently Asked Questions (FAQ)
1. I have taken a joint home loan along with my wife. My wife pays 40% EMI while I pay 60%. Since, my salary is higher, can I claim higher tax deductions?
Yes, you can claim tax deduction in the proportion of the amount you are paying towards your principal and loan repayment i.e. you can claim 60% of principal and interest repayment and your wife can claim 40%. Since, your salary is higher you will be able to save more tax this way.
2. I have taken a joint home loan along with my father. But, I am paying the entire EMI. My father is not claiming any tax benefits on the loan. Can I claim tax deductions on entire loan repayment?
If you are a co-owner of the property, you can claim deductions on entire amount provided you take in writing from other co-owners (your father in this case) that they will not be claiming any tax deductions on loan repayment.
Take a home loan in joint names, if:
- You need a higher loan amount than your individual loan eligibility would allow i.e. if you want to increase your loan eligibility,
- Income Tax benefits of joint home loan are significantly higher than an individual loan.
Avoid a joint home loan, if:
- You have enough loan eligibility individually,
- Income tax benefits of joint home loan are not significantly higher than an individual loan,
- You may plan to buy another house in future,
- You want to sell the house after sometime and you feel that getting concurrence from co-applicants can be a problem.
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