I have a house in Bangalore, which is currently on rent. I pay Rs20,000 per month as equated monthly instalment (EMI) for the house. What are the tax implications on my EMIs if my house is on rent?
There are no tax implications on the actual EMIs you pay every year. You can claim tax benefits for the EMIs paid out for any particular fiscal year during the loan repayment tenure. However, you also need to accommodate the income you obtain as a result of the rent received by you. This would fall under “income from other sources”, where you can include the rent received as income from house property. Depending on the income received, you can then pay the tax accordingly.
Me and my wife are co-owners and co-borrowers of a house. Can both of us claim tax deduction on the EMIs that we pay? We have a joint account from which we pay the EMI. How do we split the EMI to calculate our respective tax deduction?
Tax benefits for loan repayments are split in the ratio of the share in the home loan.
Share in repaying the interest component: The specifications of section 24 and related sections 26 and 23 suggest that both of you are individually eligible for a tax rebate on interest repaid, which amounts to a total of Rs3 lakh deduction for every fiscal year for the duration of the home loan for a self-occupied property.
Share in repaying the principal: Both of you are eligible for a tax deduction of Rs1 lakh from your respective individual shares of the principal component for every fiscal year for the tenure of the home loan for a self-occupied property.
To get the best out of tax savings, it is good to let the partner with the higher salary make a higher contribution towards the home loan resulting in better tax benefits collectively. In any case, since both of you are earning, other expenses can be managed with the income of the person contributing a lesser share towards the loan. This would help you optimize the benefits from the tax exemption on the principal and interest repaid. Also, kindly remember that tax slabs may change according to the specifications in the Budget every year and there could be changes in the gross income as well, not to mention changes in the total principal and interest repaid in every new year of the home loan. In this respect, the interest repaid will become considerably less and the principal repaid will become higher during the latter years of the loan.
For tax purposes, it is best to procure a home sharing agreement, detailing the ownership proportion on a stamp paper as legal proof for ownership.
Adhil Shetty, CEO and Founder, BankBazaar.com
Queries and views at firstname.lastname@example.org