July 30th, 2015

Joint Home Loan – Tax benefits and other advantages

Purchasing a house is a major financial decision. It requires large investment due to high property rates across leading cities in India. Higher property rates would mean higher loans but sometimes, single income is not enough to make one eligible for a higher amount that one requires. Under such conditions, a joint home loan is a suitable option which helps you to get higher credit/loan. In simple terms, it just means 2 applicants applying for a home loan to purchase a house. With additional income of the co- applicant being considered for eligibility, the affordability towards availing a home loan shoots up

Most lenders consider the following parties as eligible co-applicant of a joint home loan:

What parties can be co-applicant?

• Married couples
• Father and son (son being the primary owner in case of multiple heirs)
• Father and unmarried daughter (daughter being the primary owner of the property)
• Mother and unmarried daughter
• Brothers (in case of co-owned property)

What parties cannot be co-applicants?

Sisters, brother-sister, cousins, friends and unmarried partners may not be considered as eligible co-applicants.

What are the main benefits of a Joint home loan?

• Ability to get higher loan: A joint home loan – sanctioned on the basis of the combined earning capacity of the co-applicant – lets you borrow a significantly higher amount. You can thus purchase that larger or a more expensive house that you longed for, by taking a joint home loan.

• Higher tax saving (on combined basis): All the co-owners can avail tax benefits on a joint home loan. Each co-owner, who is also a co-applicant, can claim the following benefits:

Tax ceiling

• Exemption of up to Rs.1.5 lakh on repayment of principal amount of home loan (Section 80C of the Income Tax Act) for each co-applicant
• Exemption of up to Rs.2 lakh on interest paid on home loan (Section 24 of the Income Tax Act) for each co-applicant

Explaining the tax benefit with an example

The tax benefits are computed on the basis of the proportion of home loan taken by the co-applicants. For example, if there are two co-applicants who have taken a joint home loan of Rs.20 lakh (where the first applicant is sanctioned Rs.12 lakh based on his borrowing ability and the second applicant is sanctioned the balance Rs.8 lakh), the proportion of borrowing is 60% (first applicant) and 40% (second applicant). In this case, 60% of the loan repayment and interest paid is considered as the tax benefit available for the first applicant, while the balance 40% is the tax benefit available for the second applicant.

By taking a joint home loan, the co-applicants can claim higher tax benefits than the benefits that can be taken by a single applicant. Here is an example to explain this:

Individual vs Joint home loan – Tax benefit scenario

As seen above, in case of joint borrowing, higher tax savings are possible. To avail the tax benefits, you need to furnish a home sharing agreement indicating the ownership proportion on a stamp paper.

Important things to consider before you take a joint home loan:

• The co-applicant may not be the co-owners of the property; however, most lenders insist that all the co-owners should be the co-applicant of a joint home loan.
• All co-applicant are jointly and severally liable to repay the loan. Default in payment by one applicant may adversely affect the credit score of all the applicant.
• It is advisable for co-applicant to take separate life insurance to reduce the financial burden in case of death of any applicant.

A home is one of the most important assets that you will purchase; don’t compromise on it due to cost. Avail a higher loan by borrowing jointly to buy the home you deserve.