Only the person taking the home loan can claim tax benefit
If the share of each co-owner is definite and ascertainable, the tax benefits can be availed by each
I have taken a home loan and booked a flat. My wife’s and my salary incomes were considered for sanctioning the loan. I have been named as the borrower and my wife as the guarantor. Can my wife avail income tax benefit on the interest paid if I don’t claim the benefit? Is it necessary to make my wife the co-borrower to avail the benefit? Will the bank modify the loan documents accordingly? The flat is still under construction and the bank is yet to disburse the full loan amount.
—Atul
We understand that currently the flat is booked in your own name only. Further, you had availed the home loan from the bank and would be repaying it though your wife is the guarantor of the home loan.
As per section 24, for availing a deduction on interest on a housing loan, the income from the property should be chargeable to tax in the hands of the individual as an owner and loan should be repaid by the individual as a borrower of loan.
Since the flat is booked in your name and you would fund the investment in it by availing a housing loan, only you can claim the tax deduction. Your wife will not be entitled to avail the tax benefits. If your wife also intends to claim the tax benefits for the housing loan, she should own the flat as well as be a borrower of the loan. In this respect, the property as well as the home loan documents have to be modified, if possible. Accordingly, as per section 26, in respect of joint ownership, where the share of each co-owner is definite and ascertainable, the tax benefits can be availed in the proportion of the share of funding in the flat.
Since the flat is under construction, the deduction towards interest can be availed from the financial year (FY) in which the flat is constructed. The pre-construction interest paid shall be allowed as deduction in five equal annual instalments. The quantum of deduction would depend whether the flat, once construction is completed, is considered as a self-occupied property or a let out property (LOP) or deemed to be a let out property (DLOP).
If the flat is treated as LOP or DLOP, the entire interest (including one-fifth of pre-construction interest) can be claimed as deduction against the net rental value/deemed rental value offered to tax as per the domestic tax law. If the house is considered as SOP, each one of you could avail deduction up to 2 lakh per FY.
Each of you can also claim deduction under section 80C on the repayment of principal portion of the loan (overall cap of 1.5 lakh) irrespective of the property being LOP, DLOP or SOP. While there is ambiguity on the principal—whether the flat should be constructed or not to claim deduction under section 80C—a view may be possible to claim it while the flat is under-construction subject to overall aforesaid limit of 1.5 lakh per FY.
Queries and views at mintmoney@livemint.com
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!