Tax benefits for your home loan

The tax benefits are applied according to the proportion of the loan taken by everyone involved in the joint loan. For e.g. if the ratio of ownership is 70%:30% then the loan amount of 50 L will be split as 35 L and 15 L respectively and interest/principal applicable to the respective amounts will be taken into account for each individual taking the loan. For claiming your tax, it is best to  procure  a home sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership.

One of the most attractive benefits of taking a home loan is that they help you save tax, while you prepare to invest in a fixed asset. Acquiring a home loan makes you eligible for tax rebates under Section 80C and Section 24 of the Income tax regulations.

These tax deductions are capped at 1 lakh for the principal repaid and 1.5 lakhs for the interest repaid in that particular financial year, for which you are filing your returns. Another advantage of these tax rebates is that if you take a joint home loan with your parent or child or spouse, these tax rebates can be availed simultaneously by all of you involved in the joint loan.

The tax benefits are applied according to the proportion of the loan taken by everyone involved in the joint loan. For e.g. if the ratio of ownership is 70%:30% then the loan amount of 50 L will be split as 35 L and 15 L respectively and interest/principal applicable to the respective amounts will be taken into account for each individual taking the loan. For claiming your tax, it is best to  procure  a home sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership.

Another aspect that needs to be remembered is if you are buying a house under construction that you can claim tax benefits only after the construction of the house is completed. Also if you choose not to live in that house by let it out for rent, then you need to pay tax for rental income received as well. Acquiring a home loan is a definite benefit for your tax planning but it should never be a case of getting a home loan just to claim your tax benefits, when you have the option to buy your home with your own funds. It is always better to convert your own funds into a fixed asset and pool in the money you would end up paying as EMI into a fixed deposit or a similar financial instrument that allows you to get a good return on investment.

To get the best out of the tax savings, it is good to let the partner with the higher pay make a higher contribution towards the home loan resulting in a better tax benefit collectively. In the case of an earning couple, this would make most sense as other expenses can be manged with the income of the person making a lesser share towards the loan. This would help you optimize the benefits from the tax exemption on principal and interest repaid.

So taking a joint home loan has the significant twin benefit of increasing your loan eligibility and maximizing your tax rebate. There is one rule banks insist on when you apply for a joint home loan, which is that all co-owners of the property should also be co-applicants but the reverse need not be true.