Tips to claim tax benefits on a joint home loan

Home loans play a pivotal role in facilitating property purchases for individuals. Many home buyers opt for joint home loans due to their advantageous interest rates and simplified repayment options. However, one of the most significant benefits of joint home loans lies in the associated tax advantages. Each joint owner has the opportunity to individually claim tax benefits on the loan, subject to specific conditions. This article explores these conditions and how they enable joint home loan applicants to maximise their tax benefits. Read on to understand the eligibility criteria and tax benefits on joint home loans.

What is a joint home loan?

A joint home loan involves two or more individuals jointly applying for a housing loan, sharing equal responsibility for repayment. Co-applicants typically include family members such as spouses, parents, siblings, or offspring. There are several advantages to opting for a joint home loan. Firstly, it allows for a higher loan amount. Secondly, it distributes the tax burden between the applicants, resulting in potential tax savings. However, the primary benefit lies in the tax advantages that both parties can collectively enjoy.

Conditions for availing of tax benefits on joint home loans

There are certain conditions you need to meet to be eligible for availing of tax benefits on your joint home loan. These include:

Co-ownership of the property

Both applicants must be co-owners of the property being purchased with the joint home loan. This property should be self-occupied to avail of tax deductions on both principal and interest repayments. If the ownership shares are undefined, the interest deduction is typically divided equally.

Co-borrower status

Each individual seeking tax benefits must also be a co-borrower on the home loan. Being a co-owner alone isn’t sufficient; all co-owners must be listed as co-borrowers. This ensures that each borrower is equally responsible for the loan repayment.

Completion of home construction

The construction of the home financed by the joint loan must be fully completed. Tax benefits can be claimed from the financial year in which the construction concludes and the property is ready for occupation. During the construction phase, interest payments can be claimed in five equal installments, beginning from the year when construction is completed.

What are the tax benefits on joint home loans?

Various sections of the Income Tax Act enable individuals with joint home loans to avail of significant tax benefits, such as:

Tax benefit on joint home loan under Section 80 C

Section 80C of the Income Tax Act provides a deduction of up to Rs 1.5 lakh from an individual’s taxable income. In the case of a joint home loan, each co-borrower can independently claim this deduction, effectively doubling the tax benefit to Rs 1.5 lakh per borrower. It’s important to note that this deduction also encompasses payments towards other investments like life insurance premiums and contributions to the Public Provident Fund (PPF). It’s essential to ensure that the property is fully constructed and self-occupied to qualify for this deduction under income tax regulations. Prospective applicants should verify their eligibility before seeking these benefits.

Tax benefit on joint home loan under Section 24(b) 

Section 24(b) of the Income Tax Act allows for a deduction of up to Rs 2 lakh on the interest paid towards a home loan for a self-occupied property. In the case of a joint home loan, each co-borrower can claim this deduction separately. This means that both co-borrowers can individually claim deductions on the interest paid on the loan, up to a maximum limit of Rs 2 lakh each per year.

The tax deduction under section 24(b) is applicable based on the proportionate share of each borrower in the loan. It applies only to the interest component of the Equated Monthly Instalment (EMI) and not to the principal repayment. It’s important to note that this deduction is available only if the property is self-occupied by the co-borrowers. If the property is let-out, there is no upper limit on the interest deduction, and you can claim the actual interest paid.

For this deduction to be valid, the construction of the house must be completed within five years from the start of the loan. Failure to complete construction within this period reduces the deduction limit to Rs 30,000 annually.

Tax benefit on joint home loan under Section 80EE

Section 80EE of the Income Tax Act provides an additional deduction of up to Rs 50,000 on the interest paid towards a home loan. This deduction is available in addition to the Rs 2 lakh deduction under section 24(b). However, it is specifically applicable to first-time home buyers. To qualify for this deduction:

• The loan amount should not exceed Rs 35 lakh.

• The value of the property should be at least Rs 50 lakh.

In the case of a joint home loan, where there are multiple co-borrowers:

• Each co-borrower can individually claim a deduction of up to Rs 50,000 under section 80EE, provided they are first-time home buyers.

• The loan amount and property value must meet the specified limits for each co-borrower to avail of this deduction.

Housing.com POV

Joint home loans offer numerous advantages, including higher loan amounts and shared tax burdens that lead to potential savings. The ability for each co-owner to individually claim tax benefits under various sections of the Income Tax Act, such as Section 80C, Section 24(b), and Section 80EE, enhances the financial benefits significantly. However, it’s crucial to meet specific conditions like co-ownership of the property, co-borrower status and completion of home construction to qualify for these benefits. Understanding these conditions and maximising tax deductions can help joint home loan applicants optimise their financial planning effectively. Whether you’re a first-time home buyer or considering joint ownership with family members, leveraging these tax benefits can make a substantial difference in managing your property investment wisely.

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