Madan and Rathi are a young couple who are on the lookout for a flat in Chennai. Both of them are employed with handsome salaries. Like every other young couple, they have also been receiving quiet a number of suggestions on the do’s and don’ts’s of buying a house. Among them was a suggestion from their Chartered Accountant, who urged them to go for a joint ownership of the flat as they would benefit from it.
Owning a house is a dream for many. But the ever spiraling property prices makes it look impossible to realize the dream even with a housing loan. Normally, financial institutions consider only 60% of the take home pay of the loan applicant to check eligibility. Including the spouse as a co-applicant will definitely increase this eligibility. Further, many Banks offer lower interest rates to women applicants. Thus it makes sense for the couple to share the financial responsibility to ensure they support each other not only emotionally but also financially.
Adding the spouse as a co-applicant can definitely result in tax benefits. But one must remember that these benefits come along with a few caveats.
1. Co-owner & Co-applicant:
A spouse must definitely be a co-owner in order to qualify as a co-applicant. But all co-owners need not necessarily be co-applicants to a housing loan. If a spouse is not included as a co-applicant to a housing loan, he/she cannot claim tax benefits on the principal and interest repaid.
2. Tax Benefits
a) REPAYMENT OF PRINCIPAL:
Repayment of principal of a housing loan can be claimed as a deduction under section 80C upto a maximum limit of Rs. 1.5L. In case of joint liability for a housing loan, this benefit of Rs. 1.5 Lacs can be claimed by both the applicants, thus doubling the tax help. However the amount of deduction claimed cannot exceed the actual principal repaid. One should remember that the repayment must be made by both applicants to claim this benefit.
b) PAYMENT OF INTEREST:
Interest paid on housing loan can be claimed as a deduction under section 24b upto a maximum of Rs. 2L for a self-occupied property. Similar to the principal repayment, in case of joint liability this benefit doubles. One must keep in mind that the maximum amount claimed as deduction under section 24b by both applicants together cannot exceed the total interest repaid. As mentioned in the above point, this benefit can be claimed only if the EMI is serviced by both applicants.
c) STAMP DUTY & REGISTRATION CHARGES:
Stamp duty and registration charges paid can be claimed as deduction under section 80C in the year of incurring such expenses upto a maximum limit of Rs. 1.5L. Since the property prices are high, these charges are bound to be more. In case of joint ownership, this deduction can be claimed by own the ratio of ownership.
3. Issues in switching EMI pattern
Share of liability between applicants for a home loan is crystallized at the time of purchase of the property. This ratio is determined based on the earning capacity of the applicants and need not necessarily match with the share in ownership. It is key to understand that the pattern in which loan is repaid is maintained throughout the tenure to avoid hassles with the tax authority. In quite a few cases, it is understandable when women take a sabbatical for maternity and other reasons. In such cases, it would be good practice for the spouse to finance the EMI through a loan or a gift to ensure that the EMI is serviced in the same pattern.
Buying a house is not only an emotional decision, but also a critical financial milestone in one’s life. For most people, especially the salaried class, it is a life’s saving. This being the case, it is important to tread carefully and make the right choices. Banks, financial institutions and the real estate developers could guide you on the eligibility front as their key focus will be on the repayment capacity. What could be missed out is the ideal tax help in these loan arrangements. With our expertise on the matters of personal finance and taxation, you can bank on us for an unbiased view of the pros and cons of the various choices available to you.
How can we help you?
Various clauses from the Income Tax Act may be simplified in online contents. But most of the time, it requires professional help in identifying suitable route for specific instances. Similar to nurturing and taking care of personal health, it is important to also keep a tab on one’s financial health. We at Chockalingam Unnamalai & Associates, can help you understand the pros and cons of various choices you make in the context of personal taxation. You can bank on us for a stress free tax filing and related compliances.
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