With the slowdown in the Indian economy, prudent financial planning is crucial in today’s date. By doing so, one can reduce his/her liability risk and also save enough cash to meet all important financial goals. Purchasing a house is one of the most important of these financial goals for most. It requires pooling large amounts of funds from one’s income. However, this task becomes slightly easier if two earning members work together to create the corpus or these funds. It allows you to expand your options in terms of the houses you are looking at, relaxes some of the pressure in arranging the down-payment, and also eases EMI payments. Joint home loans additionally mean higher tax breaks for the family unit.
Let us see what form of tax cuts one can profit against the property they purchase or construct:
- Tax benefits are accessible to joint proprietors of a house.
- The key point to note here is that the co-owners will be entitled to a tax cut only when they have taken the credit mutually.
If any of the above two criteria aren't fulfilled, they will most likely be unable to avail the tax benefits. Therefore, to claim the tax benefits:
- Applicants must be co-owners: If one of the applicants is not a proprietor according to the records, he/she will most likely not qualify for co-ownership
- Applicants must be a co-borrowers: If one of the applicants isn’t contributing towards the EMIs for the borrowed housing loan as per the agreement documents, then he/she will be considered an owner who isn’t a borrower
- Construction of the house must be completed: Tax cut can be availed only after the construction of the property is complete. A property under construction is not considered for a claim
Once the above three prerequisites are met, the following tax benefits can be claimed:
- Joint owners can claim a sum of INR 2,00,000 as deduction individually under Section 24 of the Income Tax Act against the interest payment made for the loan. This is the maximum deduction that is permissible and is twice of what a single owner would be able to claim
- A maximum deduction of INR 1,50,000 towards repayment of principal under section 80C can be claimed by the co-owners, individually again in this case
- The tax benefits are applied in proportion to the ratio of ownership. If the ratio is 70:30 for a joint loan, the loan amount and interest payments will be split in the same ratio, and so will the deductions, ensuring a fair distribution of benefits
- Stamp duty, registration costs, and other administrative costs can be claimed under Section 80C, and in a joint home loan, these costs can be split and claimed within a year of taking the loan. Splitting the costs helps you to stay within the maximum amount permissible
Hence, as a family, you will have the option to take a bigger tax break against the interest paid on the home credit when the property is jointly owned, and your interest outgo is more than Rs 2,00,000 per annum. The two crucial benefits that come with taking housing finance in joint ownership include tax deductions of principle and interest payment and cost-sharing.
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