Many aspiring home buyers fund their purchases with a housing loan. Apart from providing financial support to buy a fixed asset, a home loan also enables a borrower to avail of several tax benefits according to the Income Tax laws. Sections 80C and 24 provide multiple tax benefits to home loan borrowers. However, one may increase their benefits by taking a joint loan. All the co-applicants receive tax benefits, which means several individuals can make higher tax savings by co-applying for a home loan.
Know About the Tax Benefits of a Joint Home Loan
For joint home loans, all the co-borrowers receive the applicable joint home loan tax benefit. It means they can share the tax deductions, especially if they share the annual home loan payments. It is applicable for a single loan product, which is a joint house loan. These are a few tax benefits one may avail:
- Tax Benefits Under Section 80C
Under the Income Tax Act Section 80C, each co-applicant can claim a tax deduction of up to Rs. 1.5 lakh per annum on loan EMI’s principal amount. The exemption includes other investment contributions, including life insurance premiums, PPF, etc. However, this deduction is applicable for fully-constructed properties only, and they should be self-occupied by the borrower.
- Tax Benefits Under Section 24(B)
Under this section, joint home loan borrowers can claim tax deductions of up to Rs. 2 lakh per annum on the loan EMI’s principal and interest components. This deduction is applicable whether the borrower self-occupied or rents out the property after purchase. However, one condition is that the property’s construction should finish within five years of the home loan application online and disbursal. Otherwise, the tax benefit will reduce to Rs. 30,000 per annum.
Conditions to Avail Tax Benefits on Joint Home Loans
These are a few conditions that one must fulfill to claim a joint home loan tax benefit:
- The proportion of the loan ownership determines the fraction of the tax benefit for each co-applicant.
- Each candidate can claim not more than the maximum tax benefit through a home loan, which is Rs. 1.5 lakh per borrower and Rs. 2 lakh for the principal repaid.
- The home loan must be taken by providing the names of two individuals.
- Each co-applicant’s share of loan ownership should be mentioned in the loan agreement in percentages.
- The co-applicant must be a close family member.
Besides these, one may avail of tax benefits on joint properties under three situations outlined below:
- The borrower claiming tax benefit should be the property’s co-owner as well.
One must be a property’s co-owner to avail of tax benefits for a joint loan. According to the loan agreement, co-borrowers who jointly apply for a home loan must share the property’s ownership as well to claim any tax benefits.
- The individual claiming tax benefits should be the home loan’s co-borrower.
An individual claiming the tax benefit should co-apply for the loan and contribute towards its repayment.
- The property must be constructed completely.
Tax benefits on residential properties are applicable only after their complete construction. A property that is under construction is ineligible for tax incentives. On the other hand, an individual can claim any expenses made before the property’s construction in equal payments afterward.
What if the Borrowers Take a Loan from Friends and Family Rather than a Home Loan?
If an aspiring home buyer borrows a loan from a friend or relative and pays interest to them, they may avail of tax benefits on the interest payment under Section 24. However, they must provide a formal certificate for the same. The person receiving income from the interest is also liable to pay the income tax. For such individuals, there are no tax exemptions on the principal loan amount, which is why it is wiser to take a home loan rather than borrow from friends or relatives.
As mentioned above, home loan co-applicants may avail of a joint home loan tax benefit in multiple ways. They may also claim exemptions on stamp duty and registration fees. So, apply for a home loan jointly and maximize tax benefits while becoming a proud homeowner. Additionally, joint loans are always beneficial, as they increase the loan amount and reduce the repayment burden through the power of sharing.