Property Co-Owners Can Avail Of These Tax Benefits

For every individual, buying a home is a huge financial investment. And when the buying is done through co-ownership, then it becomes a wise move and smart strategy. Joint ownership brings many benefits in terms of borrowing and income tax.

To avail tax benefits, both co-applicants need to be joint owners of the property. There is always a confusion when co-owners take home loan jointly. It doesn't necessarily make them joint owners. Tax benefits cannot be availed by the partner who is not a joint owner. Therefore, property documents should mention both co-applicants as owners.

For example, if a mother and son take a loan jointly, and son is not a co-owner of the property and also the EMIs are paid by the son only, then despite paying the EMIs himself, he wouldn't be able to claim tax benefits on this home loan. To claim IT deductions, the son needs to be a co-owner of the property and a co-borrower as well.

If the property documentation is done properly both co-owner's name on it, the tax benefits that can be availed are as follows:

• While filing IT returns, each of the co-owner and co-applicant in the home loan can claim a maximum deduction of Rs 2,00,000 towards interest on the loan. In addition, the property should be the only property owned by them. It should be self-occupied or lying empty. If the property is given out on rent, then the total interest component can be claimed as a deduction.

• Each of the co-owners can claim a deduction, subject to a maximum Rs 1,50,000, towards repayment of principal amount under section 80C.

Therefore, when it comes to buying a property, larger tax benefits are gained by a single family. The family gains tax benefits against the interest paid on the home loan when the property is owned jointly and the interest paid is more than Rs 2,00,000 annually. For instance, if the interest component of a joint loan is Rs 5,00,000, a single borrower can only claim deduction of Rs 2,00,000 while joint borrowers can both claim the same amount, leading to a total deduction of Rs 4,00,000. This is an excellent and wise move of buying a property through co-ownership. The smart move will enhance annual household savings or investments in the family.

Though, one thing needs to note that tax benefit for both the deduction on home loan interest and principal repayment can only be claimed under section 80C after the construction of the property is finished and ownership has been taken. Also, the joint owners can also claim the stamp duty and registration charges paid for the property.

Borrowing: Facts co-owners should know 

While registration, the property should be registered in the name of both borrowers. It is very important to mention the shared rights over the property. The division of interest will be claimed in the same proportion in the asset as is owned by each co-applicant.

For example, if the ownership ratio of the house is 60:40 and the loan amount is Rs 1 crore, then the split will be Rs 60 lakh and Rs 40 lakh, respectively. When it comes to tax benefits on the interest, it can be claimed as per the loan amount of each co-applicant. This may lead to a little confusion. So, to clear all the doubts, it is best to deposit the individual amount of the EMI into a joint bank account every month and then make the loan payment.

In addition to the above-mentioned benefits, buyers can also avail of a higher loan amount. Getting a higher loan amount is possible in a joint home loan is because the bank considers the income of both applicants and then decides on the loan amount that can be sanctioned, which is significantly higher.