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Home loan tax benefits that you get when you buy a property jointly with your spouse

This article tells you why it is a good idea to buy a home jointly as a couple and it is not only the tax benefits you get.

Home loan tax benefits that you get when you buy a property jointly with your spouse


Posted on 18 Feb 2024
Author: Sayan Sircar
8 mins read
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This article tells you why it is a good idea to buy a home jointly as a couple and it is not only the tax benefits you get.

Home loan tax benefits that you get when you buy a property jointly with your spouse

This article is a part of our detailed article series on the concept of home loans. Ensure you have read the other parts here:

📚 Topics covered:


Summary

  1. Home Loan Eligibility for Joint Applicants: Banks generally do not sanction a home loan where total EMI is more than 30% of the income of the borrowers. Therefore, the home loan that you are eligible for will be at most 40 times the in-hand salary.
  2. Joint Home Owners Get Double the Tax Benefits: If a couple takes a home loan jointly, they get up to ₹3 lakhs of benefits under Section 80C and up to ₹4 lakhs of benefits under Section 24B.
  3. Benefits in Renting Out Jointly: If the home is rented out, then a standard deduction of 30% on the Net Annual Value (NAV) of the property is allowed under Section 24A.
  4. Transmission is Easier in Case One Spouse Passes Away: When one spouse passes away, the other retains ownership of their proportion of the property without doing anything else.

You can buy a bigger home as a couple

Banks generally do not sanction a home loan where total EMI is more than 30% of the income of the borrowers. As a simple thumb rule of ₹1 lakh EMI/crore of principal, for a 15-year loan at 9%, we can see that

  • the in-hand salary will be at least ₹3.3 lakhs to be able to pay a ₹1 lakh home loan EMI
  • the cost of the house will be ₹1 crore

Therefore, the home loan that you are are eligible for will be at most 30 times the in-hand salary. The down-payment will be on top of that. If we formalise the calculation, here are a few sensitivity tables: Home Loan Eligibility for Joint Applicants: how to buy a bigger house

Joint home owners get double the tax benefits

Home loan tax benefits are of two types depending on the construction status of the house.

If the house is ready to move, then

  • under Section 80C, up to ₹1.5 lakhs can be claimed for the principal paid on the loan. This deduction will be reversed if the property is sold within 5 year of registration
  • under Section 24B, up to ₹2 lakhs can be claimed as a deduction.
  • under Section 80C, stamp duty can also be claimed, in the year of registration, up to the ₹1.5 lakhs limit of 80C

If the house is under-construction, then

  • Section 80C deductions on principal and stamp duty, will be applicable in the financial year when registration happens
  • Section 24B deduction has the same rule. However, the interest paid on a home loan until 31-March of the financial year preceding the year of registration may be claimed in 5 equal instalments once registration happens. In any case, the limit of ₹2 lakhs for Section 24B applies.
  • If the house is rented out, there is no limit on the deduction allowed under Section 24B
  • Tax deductions are applicable only if the construction completes within five years of taking the home loan

None of these deductions are applicable in the new tax regime. Section 24B is available in new tax regime only if the property is let out and not self occupied.

As a home owners should always check first if you will save more tax in the new tax regime in this case: Which is the best tax regime to choose from April?

In the rest of the article below, we will assume that by “joint”, both spouses are owners of the property as per registration records i.e. the title deed. Otherwise, the benefits are not applicable.

It is generally assumed that the proportion of ownership is 50:50, but other proportions are possible and in each case, the calculation for deductions and benefits will be adjusted in the same proportion.

If a couple take a home loan jointly, they get

  • up to ₹3 lakhs of benefits under Section 80C
  • up to ₹4 lakhs of benefits under Section 24B

The joint owners must be paying loan EMI in the same proportion as the ownership in the house and calculate the tax deduction on principal and interest as per interest certificate obtained from the bank in the same ratio.

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Benefits in renting out jointly

If the home is rented out, then a standard deduction of 30% on the Net Annual Value (NAV) of the property is allowed under Section 24A. In practical terms, if the rent is ₹20,000/month, only ₹14,000 is taxable. For joint owners, the rent gets split in the proportion of ownership and the standard deduction is applicable to both owners.

To keep all the transactions above board, the couple must:

  • document the joint ownership in the rent agreement
  • receive rent in the same ratio as ownership
  • provide rent receipts in the same way

Transmission is easier in case one spouse passes away

When one spouse passes away, the other retains ownership of their proportion of the property without doing anything else like running around for mutation. The legal heirs of the spouse who passed away become the owners of that share.

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This post titled Home loan tax benefits that you get when you buy a property jointly with your spouse first appeared on 18 Feb 2024 at https://arthgyaan.com


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