Back4 benefits of adding spouse as co-owner when buying a house
Buying a house jointly with your spouse can save stamp duty as well as provide tax deduction
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When Rahul Agarwal and Yukti Garg bought a house in Indirapuram, Ghaziabad, earlier this month, they preferred to go for joint ownership. Apart from the emotional reasons that go hand-in-hand with such decisions, the chartered accountant couple also knew the benefits of becoming the co-owners of a property. “Both of us are joint owners of the house because of several benefits that joint ownership offers," said Agarwal.
Unlike Agarwal and Garg, many homebuyers are unaware about the implications of co-ownership and, therefore, lose out on the benefits.
Buying a house is a big decision, and a lot of effort goes into finding a suitable house that fulfils the needs of all family members. Since it also involves a large amount, a lot of times people’s life savings, it’s better to be prudent about every small detail around the buying decision.
Experts say there are many advantages of adding your spouse as a co-owner. “It makes sense to add spouse as co-owner as it helps in enhanced loan eligibility and provides tax benefits to both co-borrowers on interest and principal repayment. Also, succession of a jointly owned property is smoother compared to the lengthy process involved in case of single ownership," said Tarun Birani, founder and CEO, TBNG Capital Advisors Ltd. Here are four benefits of owning a house jointly.
One of the significant additional expenses that a buyer has to bear while buying a house is stamp duty and registration fee for registration of property papers in the buyer’s name.
However, “you may prefer to have your wife’s name as the first owner as it can help you save a lot of money towards paying the stamp duty," said Sonika Bharati, designated partner, AKG Advisory LLP, a law firm.
In many states, stamp duty fees for registration of property is higher for male buyers and lower for women. For instance, in New Delhi, a woman has to pay 4% stamp duty compared with 6% for a man; if the property is bought jointly in the name of a man and a woman, buyers have to pay a stamp duty of 5%.
Similarly, in Haryana, a man is required to pay 8% stamp duty in urban areas and 6% in rural areas, while a woman has to pay 6% in urban areas and 4% in rural areas.
Most property purchases are financed through home loans. When giving out a loan, lending institutions first determine the eligibility, which primarily depends on the income of the borrower. Typically, loan eligibility is around five times the annual salary of the borrower. However, “If the borrower draws insufficient income, has a low credit score or a low repayment record, a co-borrower’s involvement is a blessing for the loan applicant and the lender is assured of timely repayment," said Harshil Mehta, joint managing director and CEO, Dewan Housing Finance Corp. Ltd. “Financial lenders require all co-owners of a property to be co-applicants of the home loan. However, all co-applicants may not necessarily be co-owners," added Mehta.
In case of joint applicants, incomes of all the borrowers are taken into consideration to determine the loan eligibility and can enhance the loan amount. For instance, if your yearly income is about ₹ 10 lakh, you may get a loan of up to ₹ 50 lakh. If your spouse also earns ₹ 10 lakh a year, both of you can jointly borrow up to ₹ 1 crore. Besides, “having women as a co-applicant could also get you concessional interest rate at several financial institutions. It could either be your mother, sister, wife or daughter, but they need to be the first home buyers," said Mehta.
Repayment of home loan can give tax benefits to both joint owners of a house.
Payment of stamp duty and registration fee qualifies for deduction up to ₹ 1.5 lakh under Section 80C of the Income Tax Act, 1961. Principal repayment in a year can be claimed up to the overall limit of ₹ 1.5 lakh allowed under Section 80C of the Act. The interest paid on the home loan is allowed for deduction under Section 24(b) of the Act up to ₹ 2 lakh a year, in case the home loan is acquired for a self-occupied house.
Joint borrowers who are also joint owners of the property can each claim deduction separately up to the above mentioned limits, as per their ownership share. However, jointly they cannot claim more than the actual amount of home loan repaid.
“It is always beneficial when both partners contribute an equal proportion while buying a property. This will help them in getting equal taxation and capital gains benefits," said Bharti.
There are other tax benefits as well. In case you plan to rent out the property, rental income can be shared by both the owners and may attract tax at a lower rate. For instance, if both the owners earn ₹ 8 lakh per annum and the property they jointly own with equal shares is rented out at ₹ 4 lakh per annum, ₹ 2 lakh each will be added to their incomes. In other words, their total individual income would be ₹ 10 lakh each, which comes below the slab of 30%. In the same example, if the property was owned by only one of them, the total income of that individual would have become ₹ 12 lakh, pushing the person in the 30% tax bracket.
In case the property is jointly owned by both the spouses—as a joint owner or a joint tenant with equal shares in the property—it may ease up succession issues. At the legal level, “doing so (joint ownership) also ensures that the spouse has no problems when it comes to claiming his or her rights of the property in the case of the demise of the other spouse," said Anuj Puri, chairman, ANAROCK Property Consultants.
“In case one of the spouses dies, there will not be much stress and work involved to get the mutation done in the name of the surviving owner. It is easy and saves you charges involved for mutation," said Bharati.
While there are many advantages of buying a home jointly with spouse, remember that problems could arise if your relationship sours.
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