A home loan is a long-term financial obligation that requires extensive financial planning due to the risk of losing your property if you are not cautious with your finances. A home loan is a secured loan in which you must pledge the property you want to build or buy with the lender as collateral to amass the funds you need to purchase your dream home. These funds are available at an affordable interest rate for a long-term tenor, and once you have repaid the loan amount in full, the property title is transferred back to you.
When you apply for a home loan a lender requires you to meet a few eligibility criteria to be approved and these criteria are important because it helps the lender understand your financial position. If you do not meet all of the eligibility criteria, you can still get a home loan, but at a higher interest rate, and in most cases, your loan application will be rejected.
In such cases, it is recommended that you apply for a joint home loan with your parents, spouse, or children because you can receive a home loan based on your co-applicant meeting the eligibility criteria, and if your co-applicant has a high CIBIL score and a good monthly income, you may be able to receive advantageous lending terms such as lower interest rates, larger sanctions, and faster loan approvals.
A home loan has many advantages, the most important of which is that you can take advantage of numerous joint home loan tax benefits. If you apply for a joint home loan with your wife, both you and your co-applicant will be eligible for a higher tax deduction, as well as multiple other tax rebates, lower interest rates, and reduced registration fees for women.
Here are some conditions to be aware of if you want to take advantage of tax benefits on a joint home loan:
- Co-Owner of The Property
To qualify for the tax benefits offered by a joint home loan, you must be a co-owner of the property. If you meet this basic requirement, you can take advantage of tax breaks on the principal and interest amount.
Both co-owners are eligible for a maximum tax deduction of Rs. 1,50,000 on the loan principal and an additional Rs. 2,00,000 on the interest payment. The tax deduction for the interest component is allocated based on the property’s ownership percentage; if no ownership percentage has been assigned or disclosed, it is assumed to be an equal split, and both co-owners can claim a tax deduction of Rs. 2,00,000 on the interest payment.
An important consideration that many people overlook is whether co-owners can claim equal deductions if the amount of interest paid and principal repaid is the same. The answer is no, because co-owners can split the ownership ratio and claim tax deductions separately if the interest amount for FY 2020-2021 is Rs. 2,00,000 and the principal amount repaid is Rs. 70,000. However, you cannot claim a tax deduction on the entire amount of Rs. 2,00,000.
If one of the co-owners wishes to claim tax deductions on the entire amount, the other must obtain a home loan NOC (No Dues Certificate) stating that they have no objections to foregoing their tax benefit for that year.
- Registered As Co-Borrower of The Home Loan
Both applicants must be registered as co-owners and co-borrowers on the home loan. If you want to claim tax benefits on the home loan, you must register as a co-borrower. If you do not list yourself as a co-borrower, you may not be able to claim any tax deductions on your home loan. This is done to ensure that both co-borrowers are obligated to pay the EMIs, as stating yourself as co-owner does not obligate you to pay EMIs.
- Complete Construction of The Property
The final requirement for claiming tax benefits from joint-home loan is that the property be completed. You will be able to claim tax deductions from the financial year in which the construction was completed. Borrowers can claim the interest paid on the loan during the early stages of development in five equal installments beginning with the fiscal year in which the construction is completed, and the property is ready for possession.
Here are some other types of tax breaks you can claim from a joint-home loan based on occupancy type:
- Self-Occupied Property:
When filing income tax returns, each co-applicant can claim a maximum deduction of Rs. 2,00,000 for home loan interest. Borrowers’ interest claims cannot exceed the total interest paid on the loan.
- Rented Property:
In the case of rented property, the interest that can be claimed as a deduction is limited to the amount to which the loss from such house property does not exceed Rs 2 lakhs.