Who can claim tax benefits if more than one person pays the home loan EMI?

Home-Loan-Tax-Benefits

There are many situation that people are generally under the impression that one can own any number of properties but one cannot take more than one home loan at a time. This is not true.

As there are no restrictions on the number of properties you can own, there are also no restrictions on the number of houses for which you can take home loans and claim tax benefits.

The amount of home loan that person can take, for all the properties taken together, shall depend on your earning and your ability to service the loan.

Before we discuss tax benefits if more than one person pays the home loan EMI, it’s important to understand conditions which must be met –

  1. A person must be a co-owner – To be able to claim tax benefits for a home loan, you must be an owner in the property. Many a times, a loan is taken jointly, but the borrower is not an owner as per the property documents. In such a case you may not be able to claim tax benefits.
  2. A person must be a co-borrower – Besides being an owner, you must also be an applicant as per the loan documents. Owners who are not borrowers and do not contribute to the EMI shall be devoid of the tax benefits.
  3. The construction of the property must be complete – Tax benefits on a house property can only be claimed starting the financial year in which construction of the property is complete. Tax benefits are not available for an under construction property. However, any expenses prior to completion are claimed in five equal instalments starting the year in which construction is complete.

If these conditions are met, the following tax benefits can be claimed by the tax payer–

  • If property is self-occupied – Each co-owner, who is also a co-applicant in the loan, can claim a maximum deduction Rs 2,00,000 for interest on the home loan in their Income Tax Return. The total interest paid on the loan is allocated to the owners in the ratio of their ownership. Each owner/borrower can claim interest benefit up to a maximum of Rs 2,00,000. Goes without saying, the total interest claimed by the owners/borrowers cannot exceed the total interest paid for the loan.
  • If property is rented – In the budget 2017, the interest that can be claimed as a deduction in case of rented property is restricted to the amount to which loss from such house property does not exceed Rs 2 lakhs.
  • Each co-owner, can claim a deduction of maximum Rs. 1,50,000 towards repayment of principal under section 80C. This is within the overall limit of Rs. 1,50,000 of Section 80C.

Therefore, as a family you will be able to take a larger tax benefit against the interest paid on the home loan when the property is jointly owned and your interest outgo is more than Rs 2,00,000 per annum.

You might be paying the entire loan installment and the co-borrower is not contributing any payments. In such a case, you may claim the entire interest as a deduction in your Income Tax Return.

Note – Please note that the above article is for education purpose only. This is based on our interpretation of laws which may differ person to person. Readers are expected to verify the facts and laws.

 

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