10 questions on joint home loans answered!

aking a home loan with your spouse? Or any other family member, for that matter?

Here are the 10 most frequently asked questions regarding this issue.

1. Must the co-owners be co-applicants?

Yes. All home loan companies insist that all co-owners be co-applicants.

But the reverse is not necessarily true. All co-applicants need not necessarily be co-owners.

2. If the apartment is in my wife's name, can I take the loan?

You and your wife will have to be co-applicants for the loan.

If you are neither the owner nor the co-owner of the apartment, you will not be eligible for any tax benefits on the loan repayments.

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3. If my wife and I have bought a home, can we register it on any one individual's name or must it be registered on both our names?

If the flat is jointly owned, it is better that it be registered jointly. 

4. My spouse and I own a house with ownership being 50:50. But I am repaying the entire loan. Can I claim the entire tax benefit?

You will get the tax benefit in the proportion to your share in the loan. Here is an example:

Cost of the apartment: Rs 500

How it is paid for: 50% of your own contribution and 50% by a loan

In this case, you are entitled to all the tax benefits due on the loan repayment.

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5. My spouse and I own a house with ownership being 50:50. Right now I am repaying the entire loan. After a year, she will start working.

Can we split the loan repayment and tax benefits then?

A change in your share of the loan amount will normally indicate a change in the ownership share as well. This can be done but might have stamp duty implications.

Also, I would not advice that this be changed from year-to-year, based on tax considerations, since those changes may appear artificial and look like a tax avoidance device. 

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6. If my spouse and I have not specified the percentage ownership, is it automatically taken as 50:50?

That can be one possible interpretation and the easiest assumption to make.

But this can be rebutted by either having an actual sharing agreement between the parties (take a look at this standard draft for reference), or based on actual contributions made towards the down payment and by assuming the loan repayment liabilities.

But entering a written agreement is the best way to resolve this issue.

7. If my spouse and I are joint owners and co-borrowers, can we split the tax benefits?

The tax benefits for loan repayments will be split in the ratio of the share in the home loan. Let's do it with an example.

Cost of the apartment: Rs 1,00,00,000 (Rs 10 million)
Ownership share: 60% (husband), 40% (wife)
Loan: Rs 60,00,000 (Rs 6 million)

Amount to be brought in by husband: Rs 60,00,000
Less actual contribution by husband: Rs 20,00,000 (Rs 2 million)
Husband's share in the loan: Rs 40,00,000 (Rs 4 million)

Amount to be brought in by wife: Rs 40,00,000
Less actual contribution by wife: Rs 20,00,000
Wife's share in the loan: Rs 20,00,000

Interest payment: The maximum limit of Rs 150,000 on interest paid will apply individually to both of you (ie the total deduction will be limited to Rs 300,000). Please check explanations to Section 26, Section 23 (2) and Section 24 (b) of the Income Tax Act.

Principal repayment: The tax benefits on the principal will be shared in the ratio of 2:1 between the husband and wife since that is the share of the loan for husband and wife. It now falls under Section 80C, where the limit is Rs 100,000 for each of you.

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8. Can one spouse claim the interest benefit and the other the principal repayment benefit?

No. Each tax benefit has to be shared in proportion to each one's share in the loan.

9. If my spouse and I together are repaying the loan, how must it be done?

Sometimes, spouses consider giving proportionate cheques for each EMI. Home loan companies are unlikely to accept proportionate payment of each EMI from both since their internal systems do not provide for accepting two cheques for the same EMI.

A better option would be to pay, say, eight cheques from the husband's account and four from the wife's.

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10. How do we show the income tax department the way we have made payments?

Does the bank give a certificate stating how much each of us have paid towards the principal and interest?

You should enter into a simple arrangement with your spouse when you start stating the shares of the loan. A suggested draft is provided here. You can do it on a stamp paper.

The bank is unlikely to give you a separate certificate, but you can make two copies of the certificate and submit it in your individual IT returns along with the formalised share agreement.

Illustration: Dominic Xavier