Take a joint home loan with your spouse

Do you plan to take a joint home loan along with your spouse? It can be a good decision as the joint effort could get you greater resources to buy a bigger house. But, the big question is who will get the tax benefits on a joint home loan. The good news is that all the co-borrowers can get tax benefits. But, this can happen only if your paperwork is in order. Here are a few points co-borrowers can keep in mind:

Both should be co-owners in the property

Ownership of property makes one eligible to claim tax benefits. A joint home loan involves an applicant and a co-applicant. Housing finance companies insist that the co-owners of the house have to be co-borrowers as well.

However, they do not insist on the reverse. But, it is essential for co-borrowers to be co-owners to seek tax rebate. You cannot get tax benefits if you are just a co-borrower but not a co-owner. Co-borrowers, who are also co-owners, are eligible for tax rebate in the proportion of their share in the loan.

Thus, repayment capacity of each spouse should be taken into account while deciding the share of the loan. So, a couple can be equal owners but if their share of the loan is in the ratio of 60:40, the tax benefits would be shared in that proportion. Tax experts suggest that you have to get a break-up of the share of the loan on a stamp paper at the beginning itself to avoid tax complications.

Each co-borrower can claim tax benefits

The overall tax deduction for a single borrower is Rs 1,50,000. This deduction would apply to each borrower taking the total possible deduction to Rs 3 lakh. Consider a couple which jointly owns property worth Rs 25 lakh with a loan share of 50:50.

If this couple pays Rs 1,50,000 as the interest and Rs 50,000 as principal, each can claim Rs 75,000 and Rs 25,000 as interest and principal deduction. It is advisable for you to lay down the share of the property and other loan details on a stamp paper for tax purpose, say tax experts.

Each needs a copy of the borrower certificate

Every borrower has to provide a copy of the borrower certificate to claim their respective tax relief. At the outset, the co-borrowers should enter into a simple agreement with the spouse on a Rs 100 stamp paper. This agreement should basically contain the share of the ownership along with that of the home loan availed by the couple. You need two copies of the certificate from the HFC and each of you can submit copies of the certificates along with a copy of the agreement signed between the two of you, say our tax experts. They, however, point out that there are no clear guidelines to this effect. Hence, it is possible for either of the borrower to miss out on the tax rebate. In such cases, they can claim it as a refund while filing tax returns.

Better to share payment of installments

A couple cannot pay two cheques for servicing the same EMI, i.e., EMI of the same month. An HFC cannot accept two cheques, as the internal systems do not support this. One viable option is to service the EMI from a joint account of the co-borrowers. The second option is to share the number of instalments. So, for example, eight cheques in a year could be issued from the husband’s account while the wife could issue the balance.

Another option is that one spouse pays off the instalments and seeks reimbursement from the partner. However, tax experts say that this process could get highly cumbersome both for the borrowers and the HFC.

Can one claim all benefits if spouse is not earning?

This is a relevant question, especially if one of the co-owners does not have any income. In such a case, the other co-owner should enter into an agreement with the spouse. The agreement should state that the entire repayment is met only by one borrower’s income. This would ensure you have 100% beneficial home ownership and consequently you can enjoy all tax benefits applicable to a single borrower.

It’s never too late for paperwork

What if the loan has already been taken without the above mentioned groundwork or if you want to change the loan share further down the line. You can still figure out the ownership share and the share of the loan between the two of you. But, this can have stamp duty implications. This also applies to those couples where the wife starts working after a year or later from the date of repayment. However, our tax experts recommend that co-borrowers should not keep changing the share of the loan every now and then. This can be viewed as a tax avoidance device