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Tax benefits of purchasing jointly – owned property

by with No Comment House PropertyIncome TaxTax

The Government has always promoted investments in the real estate sector. Thus, it always aims to provide various tax benefits to individuals in India for buying a house property under the ‘Housing for All’ initiative. Individuals can get additional benefits if they register the property jointly. You can buy a house jointly with anyone like your spouse, parent, friend, or a business partner.

When you avail a joint home loan, the tax benefits can be claimed by all the joint owners. However, each one who claims the tax benefits should have ownership in the property.

Also, the owners should be the co-borrowers of the home loan and should contribute to the EMI. Tax benefits are applicable only after the completion of construction of a property.

We have listed various tax benefits that are available to a taxpayer if he co- owns a property.

Residential house property

The Income Tax Act allows individuals to claim a tax deduction on interest payments of home loans. The upper limit for claiming a deduction on a self-occupied property is INR 2 lakhs for an individual per financial year after satisfying some conditions.

If it is a joint property, each property owner can claim a deduction up to INR 2 lakhs per financial year, separately. Thus, each co-owner can claim the tax benefit, provided they are co-borrowers of the home loan. This benefit is all the more beneficial if the interest payments for such home loan is more than INR 2 lakhs.

If rental income is earned out of the said property, it can also be divided between the co-owners.

Tax benefits under Section 80C

Section 80C of the Income Tax Act allows tax benefits on the principal repayment of the home loan. In case of joint ownership of property, each co-owner can claim deduction towards principal amount repayment. However, the maximum deduction limit under Section 80C is INR 1.5 lakhs.

Furthermore, stamp duty and registration charges can also be claimed by all co-owners in a jointly-owned property.

Tax exemption under Section 54

As per Section 54 of the Income Tax Act, individuals can avail tax exemption on long-term capital gains if it is invested in the purchase or construction of another residential property.

In the case of joint ownership, the capital gains can be divided between each of the owners. Thus, each co-owner can avail tax benefits as specified in Section 54. Each co-owner can invest in a new residential property and reduce the taxable capital gain.

An individual can claim tax exemption up to two residential houses if the capital gains is upto INR 2 cr.

Tax exemption under Section 54EC

Section 54EC allows individuals to claim a deduction of up to INR 50 lakhs on long-term capital gains on sale of a residential property. However, such an exemption can be availed only if the capital gains are invested in specified bonds. Rural Electrification Corporation (REC), Power Finance Corporation Ltd (PFC), Indian Railway Finance Corporation (IRFC) offer these bonds. The investment should be completed within six months of the date of sale/transfer. You can download the investments from here:

For jointly-owned properties, each co-owner can claim a deduction up to INR 50 lakhs. In total, owners can save a maximum of INR 1 cr on capital gains in joint ownership.

Please note that Section 54 and Section 54EC are applicable only if it is a long-term capital asset.

Tax benefits on home loan taken as joint owners

by with No Comment House PropertyIncome TaxTax

The tax benefits, on a joint home loan, are extended only to the “owners” / “co-owners”. It means that the registered property document needs to bear the names of each of the “owners” explicitly. It is a normal practice in India that a property is co-owned by a parent or a spouse through a loan taken jointly by the parent and child or spouses or siblings. However, you should be aware that      tax benefits accrue only to the “owner(s)” mentioned in the title deeds.

Here are a few pointers that you must keep in mind while availing tax benefits on the property.

  • Be a co-owner in the property: The borrower of the loan should be an “owner” of the property for which the joint loan has been taken to claim tax benefits.
  • Be a co-borrower in the joint loan: The government provides tax benefits in the form of tax deduction on the principal as well as interest paid on home loans. Hence, the “owner” must be a loan “applicant” or “co-applicant” as well. Owners who are not borrowers and do not pay EMIs don’t get tax benefits.
  • Status of construction: Tax benefits are not available for an under-construction property. One can claim tax deductions from the financial year in which construction of the property is complete. But the expenses made prior to completion of the construction can be claimed in five equal instalments beginning from the year in which construction is complete.

Tax benefits on home loan

  • For a self-occupied property: Each co-owner, who has a home loan under his name, can claim a maximum deduction of INR 2,00,000 for interest on the home loan in their Income Tax Return. The total interest paid on the loan is assigned as deduction to the owners in the ratio of their ownership.
  • For a property out on rent: Each co-owner / borrower can claim the actually paid interest amount. There is no limit. One can claim any amount actually spent as interest, whether it is completed or not.
  • For property under construction: INR 2 lakhs deduction applies only for a property that has been constructed within 5 years of taking the home loan. Moreover. the loan in such case should have been sanctioned after April 01, 1999. In case, the construction is not completed within this period, one is entitled only up to Rs 30,000 as deduction for such property.
  • For second self-occupied property: As per the Finance Act, 2019, the second self-occupied home can also be claimed as a self-occupied one. However, prior to the amendment, the self-occupied second property was considered deemed to be let out.

 

Tax Benefits on Home Loan (FY21 onwards)

The following table illustrates the tax benefits available to a property owner who has a home loan

Income Tax Act Maximum Deductible Amount
Section 24 INR 2 lakh (for self-occupied house)
No limit (for let-out property)
Section 80C INR 1.5 lakh from Principal (including stamp duty and registration fee)
Section 80EEA INR 1.50 lakhs of additional interest deduction (for first-time buyers, provided conditions specified in section 80EEA are met)