Tax deductions on joint home loan: What’s allowed and what’s not
Source: Live Mint
NEW DELHI
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Higher loan eligibility is not the sole benefit of a joint home loan. It also allows the borrowers to claim tax benefits individually. For instance, a couple can collectively claim deductions of up to ₹4 lakh under Section 24 on the interest.
However, being a co-borrower doesn’t automatically qualify you for the tax benefits. Factors like under whose name the property is registered and from whose bank account monthly instalments are paid play a role in deciding whether both co-borrowers can get tax benefits.
Mint explains these intricacies in frequently asked questions (FAQ).
My wife and I have taken a joint home loan in her name. Can I claim tax benefits?
No, you can’t, as you are not a co-owner of the property. The primary condition to claim tax deductions on home loan interest under Section 24 is that you should be an owner or co-owner of the house on which the loan is taken. Your wife can claim benefits on her portion of EMIs.
This would apply to even situations where parents take joint home loans with their children so that the child can contribute to repaying the loan. If the child is not a co-owner of the house, they can’t claim tax benefits on the loan.
My wife and I have a joint home loan on a co-owned house. The EMI gets deducted from my wife’s bank account. Can both of us claim tax benefits?
In a joint home loan, all the co-borrowers are allowed to claim deductions on the interest. But the condition is that the co-borrower claiming the tax deduction is paying EMIs, said Karan Batra, founder, Chartered Club.
Since the EMI is getting deducted from the wife’s bank account, only she can claim the deduction.
My wife and I have a joint home loan on a co-owned house. The EMI gets debited from our joint bank account. Can we both claim deduction on interest?
In the case of joint accounts, it is possible for both the spouses to claim deductions, said Mayank Mohanka, founder, TaxAaram India and partner at S.M. Mohanka & Associates. In the case of a self-occupied house, the maximum deduction allowed is ₹2 lakh per borrower, whereas there is no such upper cap in the case of a rented house. Needless to say, the total deduction claimed should not exceed the actual interest claimed.
“Say, if the amount of interest paid is ₹5 lakh on a self-occupied house, both can claim a deduction of ₹2 lakh each and carry forward ₹1 lakh to next year,” Mohanka said.
Batra cautions that it shouldn’t be that only one of the account holders deposits funds in the joint bank account.
My father has a home loan on a house he owns. Sometimes, I pay the EMI to support my father. Can I claim a tax deduction on my contribution?
To claim tax benefits on a loan, you must be a co-applicant. In this case, since EMIs were paid on the father’s behalf but not as a co-borrower, you can’t claim a deduction for the interest on your contribution. Even if you are a co-owner of the house but not a co-applicant on the loan, you can’t claim a deduction.
I repaid the home loan on a house my wife owns. I couldn’t claim the interest as I’m not an owner of the house. When she sells the house, can she add the unclaimed interest to the cost of acquisition to calculate capital gains?
Since the husband repaid the loan, the wife cannot add the interest to the acquisition cost. The only condition in which this is allowed is when the repayment amount is shown as a loan to the wife, said Gautam Nayak, partner, CNK & Associates LLP.
“The facts seem to be that the property was purchased in the wife’s name, though the loan was taken in joint names to get a larger loan amount. If the amount paid by the husband is treated as a loan to the wife and repaid by her (maybe over a period of time) back to the husband, the wife can claim it as the amount paid on her behalf and add it to the acquisition cost,” he explained.
“There is a clear commercial justification for taking a loan in joint name with husband.”
To treat the loan amount as a loan to the wife from the husband, there is no need for a loan deed or other documents. Instead, both should maintain accounts properly, said Nayak. “A good way is for the husband to transfer the money to the wife’s account, and the EMI gets deducted from her account. Often, it may not have been done that way, but that does not prevent the claim of a loan from the husband to the wife. To prove that it was a loan, there should be some repayment over the years,” he said.
