Taxexcel: HBL Principal U/s 80C

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What is a joint home loan?

A joint home loan is a loan which is taken by more than one person.

Terms associated with Joint home loan?

Co-owner: means a person who has a share in the property.

Co-Borrower: A co-borrower is a person with whom you take the home loan jointly. In India, a home loan can have upto 6 co-borrowers. Usually a joint home loan is taken by spouses, or parent and child. You cannot take a home loan jointly with your friend or colleague or an unmarried partner. Usually banks insist co-owners to be co-borrowers of the loan. However, the reverse is not necessary.

Tenure of the loan: Period for which loan is taken

Documentation: A joint home loan requires both the applicants to furnish the necessary Know Your Customer documents. This includes address proof, ID proof, income proof and the bank statements of both the applicants, as well as the proof of co-ownership of the property.

Repayment: Although the loan is taken by more than one person, the EMI payment can be made fromonly one bank account which can be single or joint account of one of the borrowers. The borrowers can choose to share the number of EMIs between them in the whole year.

Who can be the coborrower?

The rules says any six persons can take home loan jointly, but the banks and institutions have more restrictions co-applicants. The restrictions are as follows:

· A Joint Home Loan can be taken by Husband and Wife or Parent and Child.

· Friends cannot take Joint Home Loans.

· In some case brothers are allowed to take the Joint Home Loans.

Tenure of loan depends on the co-borrowers.

· If the co-applicants of the joint home loan are spouses, then the maximum loan tenure can be upto 20 years or 25 years, depending on the housing finance institution.

· However, in case the co-applicants share a parent-child relationship or are siblings, then the maximum term is restricted to 10 years in most cases. In case of a joint loan taken by a parent and child, if the repayment is linked to the parent’s income, then the maximum loan tenure is restricted to the retirement age of the parent.

Banks insist that, co-owners must be co-borrowers for the Home Loans. It is not necessary that all the co-borrowers must be the co-owners of the house.

What are the liabilities of taking joint home loan?

All co-borrowers are jointly and severally liable to repay the loan. It does not matter whether the payment is made in the normal course by only one of the joint borrowers as long as the full EMI is paid as per schedule. So if one of the borrowers refuses to pay the loan, has to file for insolvency or passes away, it becomes the co-applicant’s responsibility to settle the loan in full.

And do note that the repayment record on joint loans counts for your CIBIL score. The Credit Information Bureau (India) Ltd maintains information of all individuals’ payments relating to loans. It gives scores to individuals based on their credit history. Irregularity in payment by a partner or co-applicant can impact your eligibility in the future for a loan.

The co borrowers taking the loan should ideally take separate term life covers to reduce the financial burden on the other person(s) in case of their demise.

Also, if you are a co-borrower, you could perhaps draw up and sign an agreement with other co-borrowers (including your spouse) on splitting the liability. This will avoid any clashes in future

What does Tax benefits of Home Loan depend on?

Tax benefits on home loan can be be availed based on following :

· For constructed house i.e house should NOT be in pre-construction stage. You can seek Tax Benefits only from the financial year in which the construction is complete.

· Whether loan is taken for first house or house other than first house

· Whether the house is self-occupied (means you are living in it) or not i.e. given on rent or vacant?

· You can claim income tax exemption if you are a co applicant in a housing loan as long as you are also the owner or co owner of the property in question. A co-owner, who is not a co-borrower, is not entitled to tax benefits. Similarly, a co-borrower, who is not a co-owner, cannot claim benefits. Before you sign as a co-applicant in a home loan, make sure that you get a right to the property as well. Registering the house in joint names will get you additional tax benefits as mentioned earlier and your share in the property also becomes indisputable.

· The tax benefit is shared by each joint owner in proportion to his share in the home loan. It’s important to establish the share for each co-borrower to claim tax benefits.

What are the Tax Benefits on taking home loan?

For claiming income tax deduction, the EMI amount is divided into the principal and interest components. The Indian Income Tax Act allows both Principal repayment as well as Interest repayment as eligible deductions from your income Principal can be claimed :

· Up to the maximum of Rs. 150,000 under Section 80C. This is subject to the maximum limit of Rs 150,000 across all 80C investments such as EPF,PPF,Insurance Premiums etc. Before FY 2014-15 the limit for 80C was 1.5 lakh.

· Principal Repayment can be considered as a valid investment under section 80C only if it is made for a self occupied house or you are not living in the house due to work

· Interest can be claimed:

· As a deduction under Section 24 under the head Income from house property.

· You can claim up to Rs 200,000 or the actual interest repaid whichever is lower. The limit before FY 2014-15 was 1.5 lakh

· If the house is given on rent, there is no restriction on the interest amount.

· There is no restriction of Self Occupied Property for claiming the tax break on interest paid under sec 24.

· Co-owners and Co Borrowers can claim deductions in the ratio of ownership.

· The certificate issued by the housing loan company, showing the split between principal and interest for the EMI paid, is required for claiming tax benefits.

What are other deductions available on your taking home?

While buying a house you have to pay stamp duty and registration charges. You can claim deduction on these expenses under Section 80C of income tax in the respective year

For self-occupied house you cannot claim deduction on municipal taxes, but for let-out property you can claim deduction for the municipal taxes also on your income from house property.

What are Tax benefits of Joint Home loan For One House?

The repayment of principal amount of the loan can be claimed as a deduction under section 80C up to a maximum amount of Rs 1.5 lakh individually by each co-owner. Before FY 2014-15 limit was 1 lakh.

Each co-owner shall be entitled to the deduction individually on account of interest on borrowed money up to a maximum amount of Rs. 2 lakh. Before FY 2014-15 limit was 1.5 lakh.

If the house is given on rent, there is no restriction on the interest amount.

The tax benefits are according to the proportion of a loan.That is, if the ratio of the loan is 70:30, then a loan of, say, Rs. 50 lakh will be split into Rs. 35 lakh and Rs. 15 lakh and tax benefits on the interest/principal repaid will also be calculated based on this ratio.

To get the best out of the tax savings as seen with the above example, 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.

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Click here to Download Master of Form 16 Part B for FY 2014-15 [ This Excel Utility can prepare at a time 50 employees Form 16 Part B for Financial Year 2014-15]

A house, besides being a long-term asset, makes you eligible for significant tax breaks as well. You can claim deduction up to Rs 1.5 lakh for repayment of home loan principal under the overall limit of Section 80C of the Income Tax Act. Moreover, you can claim an additional deduction of up to Rs 2 lakhs under Section 24B for interest payment once you get possession and occupy the house.

Also, a joint loan means each of you can claim both these deductions individually, thus optimising your tax savings. If you have paid your municipal taxes in the current year, you can show them as deductions from your total income. A flat 30% of the annual value can also be claimed as deduction for maintenance expenses such as repairs, insurance, etc., irrespective of the level of actual incurred expenditure.

All this is common knowledge and we all know these rules. Here are some lesser-known tax deductions many of us miss out on:

Rebate on Interest Paid Before Possession: Any pre-construction interest is also allowed for deduction only if your project gets completed within 3 years of starting of the construction. Once the house is ready, you can claim the deduction for it within five years from possession in equal installments within the Rs 2 lakhs under Section 24B.

Download Master of Form 16 Part B for FY 2014-15 [ This Excel Based Utility can prepare at a time 100 employees Form 16 Part B for Financial Year 2014-15]

However, if you rent out the property, you can claim the entire interest component as deduction from the rental income as in case of rented property, the actual interest payable is eligible for deduction, thus not being subject to any maximum limit. This applies even in the case where you have two home loans for two different properties, where one is self-occupied and the other is on rent.

Rebate on Renovation Loan: If you have taken a home improvement loan for reconstructing or repairing of your property, you are eligible for a deduction under Section 24(b). This is over and above the flat 30% deduction available annually for the maintenance of property. However, there is a restriction on the amount—Rs 30,000 per fiscal, irrespective of whether it is self-occupied or you rent it out. In case you are already serving a home loan and are availing of the full tax benefit limit on interest paid, that is, Rs 1.5 lakh, then this additional benefit won't be available to you. But if, say, your the interest paid on the home loan is Rs 2 lakhs or below, then you will be able to claim the full Rs 30,000 as deduction, provided you have actually paid that much interest during the year.

Special Offer Under 80EE: The financial year 2013-14 was especially beneficial for first-time home-buyers. The finance minister in his budget speech announced an additional tax deduction of Rs 1 lakh for interest payments on new loans up to Rs 25 lakh, provided value of residential house does not exceed Rs 40 lakh. So, the total deduction under Section 24B for 2013-14 will be Rs 2.5 lakh. Although this is a one-time benefit and it can be claimed over two financial years in a piecemeal manner, that is, one may claim benefit spreading it over FY 2013-14 and 2014-15, however, if your interest component is more than the deduction limit, the balance can also be claimed in the next financial year. Since affordable housing is one of the top agendas of the government, we can expect such special sops in future as well.

Source from Economic Times