Houssing loan deduction

Dear Jitesh, i guess, here Swapnil has mention that the 4 person have equal share on the plot which they already have, and they are planning to build a home on that for that purpose they have taken a housing loan of Rs. 80 lacs.

Well Swapnil, If i consider your question in rightly manner, then the benefits under income tax on housing loan will depend on the proportion of the EMI paid by them. In your Case you have not taken home loan in Joint Account, but you have kept one person as an applicant and other three as an Co-applicant, then definately the whole EMI will go through the Applicant account, in that case the complete benefits goes to applicant, but if you make mutal agreement between yourself that other three applicant will reimburse 15% of the EMI individually and 55% will be debited from Applicant a/c then in  that case applicant can take 55% of the benefits & other co-applicant 45% equally. The Draft Agreement i am attaching herewith for your refrence.

I hope i cleared your doubt.

Please correct i am wrong somewhere.

Regard

CA Vinay Parmar

Standard draft for home loan sharing agreement

This agreement is made on ____ day of _________ 2003 between Mr. __________________  having a place of residence at ____________________(hereinafter referred to as the First Party) and Ms.  _____________________  having a place of residence at ____________________(hereinafter referred to as the Second Party) (the First Party   and the Second Party jointly being referred to as Parties hereinafter).

Whereas the Parties have jointly bought a house property being ________________

_______________________________ (hereinafter referred to as the House Property) vide an agreement dated _________ entered into with _____________________ (hereinafter referred to as the Purchase Agreement).

Whereas the Parties have jointly taken a loan of Rs. 80 from ABC Bank  (Bank) vide loan agreement dated __________________ (hereinafter referred to as the Loan)

Whereas the Parties are desirous of laying down their mutual rights and obligations.

Now this agreement witnesses as under:

1. The beneficial ownership of House Property and the manner of funding is as is as under:

Cost of the House Property  = Rs 100                                         

2. Each party acknowledges the share of the other party in the House Property and        acknowledges receipt of the own contribution made by the other party.

3. The First  party agrees to pay the installment amount due on the Loan  as per schedule 1 enclosed and the Second Party agrees and confirms that it will duly reimburse its share of the installment on the same due date to the First Party. The First Party will be entitled to claim interest @ 18% p.a on any delays beyond 5 days from the due date for receipt of this reimbursement. The First Party will be fully liable for any delay in payment of  installment to the Bank provided the Second Party has paid its share of the installment in time. Otherwise Each party will be liable to bear any interest/cost/penalty payable to the bank prorata to the extent of any delay by either party.

4. Both Parties agree to share any income that arises from the House Property in proportion of their share in the ownership.

5. Both Parties agree to claim tax benefits on repayment of the Loan only in proportion to their  share of the Loan.

6. Both Parties indemnify each other against any cost/expenses/penalty/interest that may be borne by the House Property/the other party due to the default of one of the Parties.

As a token of their acceptance to the above both Parties have signed hereunder:

_______________________                               _____________________

(First Party)                                                      (Second Party)

Thank u Vinay. That was really helpful.

Can u refer any case laws on same?

Also in future if the persons sells the house, then what will happen?? I mean land is equally owned whereas building will be disproportionately owned.

How will Capital Gains be computed?

Dear Swapnil,

For that you have to find out the Plot market valuation as on taday suppose the plot value is 2 Cr. your equal share will be of Rs.50 lacs, and suppose the Building cost is 1 Cr, out of that 80 lacs is by loan and rest own equal contribution Let assume;- A, B, C ,& D are four people ; wherein

A contribution will be 50 LAcs plot +  44 lacs loan + 5 lac own contribution , total 99 lacs

B contribution will be 50 LAcs plot +  12 lacs loan + 5 lac own contribution , total 67 lacs

C contribution will be 50 LAcs plot +  12 lacs loan + 5 lac own contribution , total 67 lacs

D contribution will be 50 LAcs plot +  12 lacs loan + 5 lac own contribution , total 67 lacs

Total Value will be 300 lacs.

Thus A share becomes 33%

B , C, & D shares become 22.33% each of them.

and capital gain will be calculated on the above proportion, the proportion depends upon the value contributed by every1.

On the other hand, we all know the Value of land rises faster than the value of building becoz of scarCity of land, in this situation with the above method B, C, & D will get less contribution at the time of sale becoz at the time of sale land value had move faster than building. In such situation it is advisable to find out the breakup at the time of sale that how much your are getting against land and how much against Buildiing and the n you can divide in that proportion. It is always advisable to have mutual agreement of all this for the bright future.

Well for the case law for the above u can search for it the on internet as the same is not readily available with me, but its an general tendency followed by everyone to share their benefit of income tax.

Regards

CA Vinay Parmar