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Joint Property loan and tax benefits/deductions

While purchasing property, you can opt for a joint loan with your spouse. In case both husband and wife are working or have separate sources of income, they can go in for a joint loan. This way the loan amount also increases. Under the Income Tax Act, tax benefits are available on home loans and the interest paid on them. In case of joint loans also, all the co-borrowers can get tax benefits. A bit of documentation and planning can go a long way in avoiding hassles at a later stage. You can also take the maximum advantage of the available tax provisions and benefits.

It needs to be ensured that both should be co-owners of the property. A co-owner of a house must be a co-borrower as well. It is essential for a coborrower to be a co-owner in order to claim tax benefits. You cannot get tax benefits if you are only a co-borrower and not a co-owner.

Co-borrowers, who are also co-owners, are eligible for the tax rebate in the proportion to their share in the loan. The repayment capacity of each spouse will be taken into account while arriving at the share of the loan. The shares of the loan may be in any ratio. The tax benefits would be shared in that proportion only. You have to specify the share of the property and other loan details on a stamp paper.

In case a husband and wife pay Rs 1 lakh as interest and Rs 25,000 as principal, each has an equal share in the borrowing, and each can claim Rs 50,000 towards interest and Rs 12,500 towards principal in their respective income tax returns. The maximum tax deduction for a single borrower is Rs 1.5 lakhs. This deduction would apply to each borrower.

In case one of the co-owners does not have any income, the other co-owner should enter into an agreement with the spouse. The agreement should state that the entire repayment is met by only one borrower’s income. This would ensure that the main applicant will have 100% beneficial home ownership, and consequently, he can avail all the tax benefits applicable to a single borrower.

As far as repayment of the loan is concerned, it may be repaid from a joint bank account, where both the husband and wife share funds. Another option, although less popular, would be to share out the EMIs between the husband and wife, and both issue a specified number of cheques towards the loan repayment. It would need to be ensured that the repayment of the loan is made in the same ratio as the joint borrowing. Further, each of the borrowers should have a demonstrable source of income to justify the repayment of loan.

Each borrower needs a copy of a borrower’s certificate. It has to be provided to claim their respective tax relief. A co-borrower should enter into a simple agreement with the spouse on stamp paper of Rs 100.

This agreement should basically contain the shares of the ownership along with that of the home loan availed by the couple.

The borrowers should take two copies of the interest and principal paid certificates from the bank and each can submit a copy of the certificates along with a copy of the agreement signed between them.

Source: Times of India

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