A joint home loan can be a good financial decision for couples who are willing to purchase a house with each other. Apart from making it easier to afford a property, it also makes both partners eligible to claim tax benefits individually. This can vastly decrease the overall tax paid in a year. However, these tax reliefs are only applicable under the old tax regime, not the new tax regime.
Under the old regime, deductions are permissible on the interest and principal components of the home loan. By declaring these as separate deductions, the individual can reduce his/her taxable income, consequently reducing the tax liability.
The Tax Benefits Explained
Two components of a home loan provide tax relief under the old regime:
Principal Repayment: According to Section 80C of the Income-tax Act, 1961, an individual can claim a maximum deduction of Rs 1.5 lakh per annum on the principal amount paid towards the home loan. In the case of a joint loan, both spouses can claim it separately, making a total of Rs 3 lakh as a couple.
Interest Payment: According to Section 24(b), every borrower is entitled to a deduction of up to Rs 2 lakh a year for the interest paid towards the loan, as long as the property is self-occupied. For rented houses, no limit is applied to interest deduction, but only Rs 2 lakh of loss is allowed to be adjusted against other incomes in a financial year.
Combined, these advantages enable a couple to claim Rs 7 lakh as deductions annually (Rs 3 lakh for principal and Rs 4 lakh for interest) if both qualify and are contributing towards the repayment.
Conditions To Qualify
In order to avail themselves of these tax benefits, certain conditions have to be fulfilled:
Both need to be co-owners of the property: It is not sufficient if one is simply a co-borrower of the loan. Both individuals need to have legal ownership of the property.
Both need to be co-borrowers: Both partners need to be included in the loan agreement and be liable for repayment.
Both of them have to contribute money: The tax deduction is available only on the amount paid by each individual. Only if one partner pays all the EMI can he avail himself of the tax benefits.
There should be records of whoever is paying what amount. This can be achieved by having independent bank transfers or keeping a clear repayment division that can be traced if the income tax department requires it.
Loan Eligibility And Other Benefits
In addition to tax benefits, joint loan can also enable couples to raise their home loan eligibility. When the lenders see two incomes coming in, they grant higher loan amounts. This becomes easier for procuring a better or larger-sized house than when applying individually.
There are also state benefits. In certain states, if the woman is a joint owner, she can receive a lower stamp duty. Banks also provide slightly lower interest rates for women borrowers, which can result in additional savings.
Only Under The Old Tax Regime
It should be remembered that these deductions under Sections 80C and 24(b) are possible only if you choose the old tax regime. The new tax regime, which came into effect in 2020, provides reduced tax rates but excludes most exemptions and deductions, including the ones for repayment of home loans. Therefore, if tax savings under a joint loan are crucial to you, using the old regime is inevitable.
Smart Planning Can Boost Benefits
Co-home loans provide more than a shared cost burden—they can lower the overall tax burden of couples considerably. With careful planning, transparency in papers, and systematic repayment, couples could save as much as Rs 7 lakh a year under the old tax regime while saving up for a house together.
