Home Loan

Taking joint home loan good for husband and wife

When a couple ties the knot — they pledge to share their lives and all the emotional and financial responsibilities that come with it together. Since buying a house is one of the biggest and most important financial responsibilities, couples invest a lot of time and efforts in ironing out the details for the location of the house, the budget, the co-ownership, down payment, home loan and so on.

However, not many are clear about how the co-ownership share impacts the tax exemptions on home loans. It is imperative that no ambiguity surrounds the tax mathematics here, as the ownership of the property is the most important criterion for claiming tax benefits.

So what does a DINK (double income, no kids) couple — let's say Sunil (35) and Nikita (33) — need to do to optimise the tax benefits on the principal amount and interest payable? If the annual incomes of Sunil and Nikita are assumed to be Rs 7 lakh and Rs 6 lakh, respectively, their taxable income would work out approximately to Rs 6 lakh and Rs 4.5 lakh, respectively.

Like most DINKs, it is likely that Sunil and Nikita will opt for a joint-ownership as well as joint home loan. Thus, both will be eligible to claim exemptions on the principal amount and interest payable. Taking a joint home loan offers dual advantage of minimising the debt burden and maximising the tax reliefs.

A joint home loan involves an applicant and a co-applicant. Housing finance institutions 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 the co-borrowers to be co-owners in order to seek tax rebate. The tax benefits will accrue to the couple in accordance with the co-ownership share. Though there are no restrictions on the ratio of ownership, in the case of Sunil and Nikita, it's best if they have an equal share as their individual taxable income exceeds Rs 2.5 lakh per annum and both fall under the 30% income tax bracket.

Had Nikita been bracketed under the 20% tax payable category, it would have made sense for Sunil to have had a higher share in ownership to claim a higher tax benefit. To illustrate the point, let us assume that they had jointly invested in a property of Rs 25 lakh in the ratio of 60:40; here, the tax benefits would have been shared in the proportion of 2:1.

Sunil and Nikita also have the option of coming to a mutual understanding on the share of ownership — irrespective of the actual investment — depending on who can claim the maximum tax benefit. This option can be exercised if the level of understanding between a couple is good and saving on the tax outgo is of paramount importance to them, otherwise it’s better to stick to the 50:50 ratio, or simply, the actual share in the investment/loan taken.

Let’s understand this with a numerical example. Sunil and Nikita have bought an apartment for Rs 60 lakh and made a down payment of Rs 15 lakh. Now with the ownership share being in the ratio of 50:50, both will borrow Rs 22.5 lakh each. This will be over and above Rs 7.5 lakh that each of them would cough up for the down payment.