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Interst on housing loan and repayment

SURESHAN (Company Secretary) (170 Points)

24 September 2014

Dear friends

A husband owns a piece of land in his own name. Husband along with his wife makes an application for housing loan and makes payment of the interest and principal. The entire amount of the housing loan along with interest is paid out of wife's income.My question is tht whether the wife will be able to claim the interst on the housing loan and the repayment of loan in her income-tax return. If so how much.

Thanks in advance

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4 Replies

CA Saloni (Manager-Accounts & GST Consultant) (5124 Points)
Replied 24 September 2014

A person can avail the interest exemption only if he pays the emi & also co- owns the house..

Santhosh Poojary (SIEMPRE AHÍ PARA TI) (15607 Points)
Replied 24 September 2014

you and your wife need to be the owner of the house...i.e the house should be registered in the name of yourself and your wife....Also your wife should be co-applicant in the loan payment....
Nd then ...your wife... if working can claim up to the limit of 150,000 each(interst amount) and 100,000 each(principal amount) under section 80C, provided your wife pays from her account...! In your case.. his wife is not co-owner of the House..so she is not eligible to claim deduction...!

Note : 1) The limit for home loan interest exemption is increased from 1.5 lakhs to 2.0 lakhs..For FY 2014-15.

CA Prashant Gupta (DGM (F & A)) (14068 Points)
Replied 24 September 2014

No. for claiming home loan deduction owenership of home is must. in your case wife is not co-owner so she can't claim deduction

ramesh kandala (sr.accounts officer) (122 Points)
Replied 24 September 2014

One of the most attractive benefits of taking a home loan is that they help you save tax, while you prepare to invest in a fixed asset. Acquiring a home loan makes you eligible for tax rebates under Section 80C and Section 24 of the Income tax regulations.

Highlights

Tax benefits get divided among co-applicants in case of a joint loan
The division takes place in the same proportion in which the asset is owned by each co-applicant
Each co-applicant can claim a maximum tax rebate of up to Rs. 1 lakh for principal repayment and Rs. 1.5 lakh for interest payment

The very first condition is the house property has to be bought by the individuals jointly, and this should be in their joint names.
The share of each holder should be clearly mentioned so that there is absolute clarity on the percentage ownership of each co-owner.

Tax benefits of Home Loan- Overall there are two types of tax benefits that are available on the repayment of a housing loan.

Interest paid on loan is eligible for a deduction up to Rs. 1.5 lakh per annum from the income of the individual under Sec 24 when the property is self-occupied or it is one ownership property lying vacant.
Repayment of Principal amount of Loan up to Rs. 1 lakh is eligible for deduction under Sec 80C.

The planning in the entire issue has to be done in such a manner that all the joint holders are able to take the tax benefit and no part of the total repayment goes waste.

Advantage for joint home loan takers-

Tax benefit

Joint holders can claim the maximum tax benefits individually. This means each holder can get a tax rebate of Rs. 1 lakh for principal repayment under Sec 80C and Rs. 1.5 lakh for interest payment under Sec 24.

The tax benefits are applied according to the proportion of the loan taken by everyone involved in the joint loan. For e.g. if the ratio of ownership is 70%:30% then the loan amount of 50 L will be split as 35 L and 15 L respectively and interest/principal applicable to the respective amounts will be taken into account for each individual taking the loan. For claiming your tax, it is best to procure a home sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership.

To get the best out of the tax savings, it is good to let the partner with the higher pay make a higher contribution towards the home loan resulting in a better tax benefit collectively. In the case of an earning couple, this would make most sense as other expenses can be manged with the income of the person making a lesser share towards the loan. This would help you optimize the benefits from the tax exemption on principal and interest repaid.

Increased Loan Amount Eligibility

If more than one person takes a home loan then income of all the co-owners will be considered by the lenders. This can help increase the size of the loan. In this case, the bank combines the incomes of both the applicants, and thus, can sanction a proportionately higher loan amount. Buying a house jointly facilitates a larger loan as income of all the co-owners would be considered by the lenders.

Additional benefits:

In many states, a lower property registration fee is levied in case the property is owned by women either individually or jointly.
If husband and wife jointly own a property reduces the succession issues.

So taking a joint home loan has the significant twin benefit of increasing your loan eligibility and maximizing your tax rebate. There is one rule banks insist on when you apply for a joint home loan, which is that all co-owners of the property should also be co-applicants but the reverse need not be true.

Under Construction house- Another aspect that needs to be remembered is if you are buying a house under construction that you can claim tax benefits only after the construction of the house is completed.

Joint structure- The term ‘joint benefit’ in a housing loan refers to a situation where more than one person takes and repays a home loan. Here, the co-applicants are family members, which include husband and wife or father and son or father and daughter or mother and son or mother and daughter as the case may be. In such a situation, tax benefits have to be divided between all co-applicants and hence known as joint benefits.

Joint account – The repayment of a joint loan has to be made from a joint account owned by the co-applicants. Each of them needs to contribute his/her share to the account. But there are times when this is not possible and in case the payment is being made from just one person’s account then there has to be a method whereby the other individual is contributing his/her share. This will ensure that the benefits are also available in an adequate manner and that there are conditions that are being fulfilled in the process.

Disadvantage of a home loan in joint names

1. If you buy another house in future then as per Income Tax Act if a person has more than one house in his name, one of them will be treated as self-occupied, and another will be treated as let-out – even if it is not actually let out on rent. You would need to pay income tax on the rent received if this second house is actually rented out. But if it is not rented out, it is deemed as rented out, and you would have to pay income tax on an amount that you would have received as rent as per prevailing market rates.

2. You have to pay wealth tax on one of your house. As per Wealth tax Act only one house is exempt from Wealth Tax. You have to pay tax on one of the house of your choice but you can deduct loan amount against the house for which you taken loan while calculating taxable wealth.

When one should take Home Loan in Joint names:- Take the home loan in joint names

If You need a higher loan amount then your eligibility in Individual capacity
The income tax savings by opting for a joint loan is significantly higher than a single-name loan

When one should take Home Loan in Joint names -

You have enough loan eligibility as single applicant
The income tax savings by opting for a joint loan is not significantly higher than a single-name loan
You plan to purchase another house in near future