Who gets the tax benefit in joint home loans?

For repayment, I transfer the entire Equated Monthly Installment to my wife's account and the bank deducts the EMIs from there.

Does this mean that both of us can claim tax deductions for the principal and the interest paid?

- Anil Vemulapalli

 I want to construct an additional floor on our existing home, which is in my father's name.

I plan to take a home loan for which my father will be primary applicant and I will be the co-applicant.

Since I will be repaying the entire amount, will I get the tax benefits? 

- Zulfiqar Ahmed

Only owners and/or co-owners are eligible to get any tax benefits in respect of home loan repayments.

Anil, your wife will not be able to claim any tax benefits in respect of the home loan repayments since the house is solely on your name.

Zulfiqar, you have to be the co-owner to get the tax benefits.

Please read the information provided at the end of this article.

• Tax benefit on a home improvement loan

I took a home loan of Rs 40,000 for the construction of my house. My father is the applicant and I am the co-applicant. Since my father is retired, the Equated Monthly Intallments are paid by me. Hence, I can claim the entire tax benefit, right?

But, my company says that I will be getting only 50% of the tax benefit.

I am ready to give a declaration that my father will not claim any tax benefit. But I am told that income tax rules do not permit this.

Is that so?

I would like to take a loan to re-construct it. Will it be possible to include all the four of us as co-applicants for the loan? I will be the one repaying it.

Can I claim tax exemption on this home loan?

Is it necessary that I have a salary account in the bank in which I take a loan?

- Karthikeyan  Arumugam

Here are some points to be kept in mind.

1. All the owners will need to be co-borrowers of the loan.

2. You must be an owner or a co-owner to avail of the tax benefits.  If not either, then you cannot avail of the tax benefits.

3. If you are only person repaying the loan, you can claim the entire tax benefit for yourself (provided you are an owner or co-owner).

You should enter into a simple agreement (take a look at the draft given below) with the other borrowers. Over here you can state who will be repaying the entire loan.

4. It is not necessary that you have a salary account in the bank providing a home loan.

What you need to know about sharing tax benefits when there are co-borrowers.

- All home loan companies insist that all co-owners be co-applicants. But the reverse is not necessarily true. All co-applicants need not necessarily be co-owners.

- If you are neither the owner nor the co-owner of the apartment, you will not be eligible for any tax benefits on the loan repayments.

- You will get tax benefits in the proportion to your share in the loan.

Here is an example of how the tax benefits will be split between a couple.

Cost of the apartment: Rs 10,00,000 (Rs 1 million)
Ownership share: 60% (husband), 40% (wife)
Loan: Rs 6,00,000

Amount to be brought in by husband: Rs 6,00,000
Less actual contribution by husband: Rs 2,00,000
Husband's share in the loan: Rs 4,00,000

Amount to be brought in by wife: Rs 4,00,000
Less actual contribution by wife: Rs 2,00,000
Wife's share in the loan: Rs 2,00,000

Interest payment: The maximum limit of Rs 150,000 on interest paid will apply individually to both (ie the total deduction will be limited to Rs 300,000).

Principal repayment: The tax benefits on the principal will be shared in the ratio of 2:1 between the husband and wife since that is the share of the loan for husband and wife. The limit is Rs 100,000 for each.

You should enter into a simple arrangement with your spouse (or the other co-borrowers) stating the shares of the loan. A suggested draft is provided here. You can do it on a stamp paper.

The bank or the home finance company is unlikely to give you a separate certificate, but you can make two copies of the certificate and submit it in your individual IT returns along with the formalised share agreement.

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