We all work to provide the basic necessities to our family. Be it a poor laborer or a successful businessman or a trader. An asset that gives a sense of security to every family member is a house. Owning a home, be it small or big, is an achievement for the head of the family. These days when the economy of our country is in little dilemma, owning a home for a borrower who falls in a middle class segment is little difficult. Though, throughout our life we all work and save to fulfill the needs of the family but from our savings we cannot pay the complete amount towards the cost of the property. Home loan plays a vital role to finance the purchase of your home. To encourage for the fulfillment of the dream home through home loan services, the government provide tax subsidies to the home loan borrowers on both principal and interest amounts paid towards the repayment of the loan.
The tax subsidy is given to the sole borrower in a home loan. However, the tax subsidy amount gets increased if the home loan is borrowed jointly. A home loan is said to be a joint home loan which is borrowed by two or more borrowers.
Savings through a Joint Home Loan
Interest is paid on the borrowed amount as a home loan. If the borrower pays Rupees 4.5 lakhs or even more as a home loan interest in a year the borrower can only claim a maximum amount of Rupees 2 lakhs as a tax exemption, i.e. Rupees 2 lakhs will be reduced from the borrower’s taxable income.
As mentioned above, when the home loan is borrowed jointly (with one or more borrowers) then each co-borrower of the loan can claim up to Rupees 2 lakhs in tax deductions. The joint home loan interest tax subsidy comes with an obvious pre-requisite condition that the total interest claimed for tax deduction by one or many co-borrowers cannot be more than the total interest paid for the loan in that particular year. The tax deduction on the interest of the loan amount can be claimed under Section 24B.
The tax subsidies can also be claimed by the co-borrowers on the principal repayment of the loan. Under Section 80C the maximum amount of Rupees 1.5 lakhs can be claimed by each co-borrower for tax deductions, i.e. Rupees 1.5 lakh will be deducted from the taxable income of each co-borrower. Again it won’t go without saying that the tax deductions to be claimed on the principal amount of the loan should not exceed the total principal repayment done in that particular year.
Joint home loans can literally double the tax exemptions by jointly borrowing a loan with even a single co-borrower (subject to the eligibility of the requisite terms and conditions under Section 80C and 24B).
Please note that the budget of Financial Year 2017-2018 restricts the tax exemption on home loan interest to Rupees 2 lakhs in the following cases: When the property is given for rent or the property is self-occupied, when the borrower owns a second self-occupied property or even when the property is presumed to be on rent.
Home loan schemes such as Axis Bank’s Shubh Aarambh and ICICI Bank’s EMI Cashback scheme were launched in middle of 2017 and attracts the prospective customers through their EMI subsidies. Moreover, the central government has also subsidized the interest amounts on the home loans through Pradhan Mantri Awas Yojna (PMAY). Throughout 2017 many Banks/ Non-Banking financial companies (NBFC’s) have reduced their loan interest rates too to become a part of the race.
To avail the tax benefits which come with a joint home loan it is important to know that the applicants have to qualify the following conditions:
- All the Co-Owners of the Home Loan should be Co-Borrowers of the Property and vice versa.
- Property should be ready to move, that means that the construction of the property should be completed as under-construction properties do not provide the tax benefits. The tax exemptions on all the interest and principal pay-outs incurred before the property’s completion can be claimed in five equal installments later from the year the construction has been completed.
Therefore, before applying for a joint home loan the borrower should ensure that all the co-borrowers have a sound repayment capacity, credit score and a strong financial profile so that the best interest rate is offered to them. While evaluating the joint home loan application, Banks/ NBFC’s consider the salaries of all the co-borrowers and decide the repayment capacity and the interest rate too. This is why taking a joint home loan is always beneficial.
However the coin has its other side too. If a single co-borrower defaults while servicing the home loan, the credit scores of all the co-borrowers will get affected. Apart from providing all the co-borrowers with an increased saving on tax, joint home loans also make the borrower and the co-borrowers eligible for higher loan borrowing limits and the most competitive loan interest rates.