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Business News/ Money / Calculators/  By taking joint home loan both borrowers can claim tax benefit
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By taking joint home loan both borrowers can claim tax benefit

In case of joint ownership and thus jointly taking a home loan, tax benefit also doubles

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While residential real estate has been in a slump for the past couple of years, prices have fallen only in a few select pockets in some cities. In such a scenario, tax incentives give some respite to homebuyers in terms of capital and interest repayment for home loan. In his 2015 budget speech, finance minister Arun Jaitley announced that limit of deduction on interest paid on borrowed funds for a self-occupied house would be increased. In case of joint ownership and thus jointly taking a home loan, tax benefit also doubles.

TAX BENEFITS WITH A HOME LOAN

Tax planning may not be the only component of a financial plan, but it is an important part nonetheless. While most of the financial products that come under section 80C of the income tax Act are well known, others are not that well understood. One such is the home loan, with which an individual can easily save tax on income of up to 4,44,200, besides the basic limit of 2.5 lakh. This can be done through a combination of different deductions and exemptions available to an individual income tax assessee such as deductions under section 80C, 80CCC, 80D, 24(b) and travelling allowance. The equated monthly instalments (EMIs) of a home loan are made up of two parts—interest and capital repayment. Tax deduction on capital repayment component comes under section 80C, and is within the overall limit of 1.5 lakh a year. The interest component deduction comes under section 24(b) and the limit is 2 lakh. But this is if the house is self-occupied.

DUAL BENEFIT

A house can be purchased in joint ownership. Similarly, you can also include a joint applicant to take a home loan. Doing so not only enhances the potential amount of the loan, it also allows both the borrowers to become eligible to claim tax benefit against the same house. For instance, if you take a home loan of 50 lakh at the rate of 10% interest per annum, you will pay about 5 lakh as interest in the first few years. If you are a single borrower, you can claim deduction of only up to 2 lakh each year out of the 5 lakh paid. But if there are joint borrowers, you can together claim 4 lakh. This helps you enhance household savings or investments.

POINTS TO NOTE

The house should be registered in the name of both the borrowers. The share of rights over the property should also be clearly mentioned in the registry papers. The division of interest can be claimed in the same proportion in which the asset is owned by each co-applicant. For instance, if the ratio of ownership of house is 75:25, then the loan amount of 50 lakh will be split as 37.5 lakh and 12.5, respectively, and the tax benefit on the interest paid can be claimed based on the loan amount against each co-applicant. To keep track of who paid how much, deposit individual share of the EMI in a joint bank account and then make the payment.

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Published: 30 Jul 2015, 07:32 PM IST
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