Home loan
Joint Home loan helps raise more finance, brings extra tax benefits
High real estate prices and interest rates on home loans have pushed the so called dream home beyond the reach of many common people. And the floating rate on home loans — now the norm among lenders and which can inflate the monthly instalments in a rising interest rates scenario — has also made many probable customers wary. Against this backdrop, individuals are looking for ways to make their dream home into a reality.
A joint housing loan is one of the options that helps individuals to raise more finances, offer more flexibility in repayment, besides extra tax benefits. "These days, working couples go for joint home loan as they get the income tax benefit on their total earnings," says Amar Ranu, senior manager, wealth management — research, Motilal Oswal Securities. However, according to experts, if one is not careful, the very benefits for which you have taken the loan, could be lost.
TAX BENEFITS
Certain tax benefits are attached to a home loan. "As per the I-T Act, the interest on borrowed capital is allowable as deduction if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property. Further, the interest on borrowing can be claimed as deduction only by the person who has acquired the property with the borrowed fund," says Suresh Surana, founder, RSM Astute Consulting Group. When it comes to a joint home loan, both the applicants can claim deduction under the provision. "However, in joint ownership scenario, each individual coowner will be entitled to a deduction of .`1,50,000 (.`30,000 in specific cases).
Thus, the interest deduction increases in case of joint ownership when compared with a single owner," says Jiger Saiya, direct tax partner, MZS & Associates. A couple can also claim deductions from the total income for repayment of the loan. "Under section 80C of the I-T Act, deduction from total income is available to the extent of .`1,00,000 in respect of any payment, re-payment, part payment and/or instalment, towards the cost of purchase/construction of a new residential house property to any bank, financial institutions, etc," says Surana.
PAYMENT OF EMIS
When you take a joint home loan, you must plan your EMI payment. Depending upon your ownership of the house and income, you could work out a plan that helps both of you maximise your tax benefits. "The contribution to EMIs should depend upon the beneficial ownership of the house property. If both the borrowers have an ownership of 50:50, the EMIs should be shared in the same proportion. So, if there is an EMI of .`50,000 and the ownership of the house property is 50:50, the EMI should be divided at the same proportion, ie.`25,000 each.
However, if there is any change in ownership of property, the EMI should be divided accordingly," says Ranu of Motilal Oswal. But don't make the mistake of giving two different cheques for your monthly EMIs. KamleshRao, executive vice-president of Kotak Mahindra Bank says, "This is because for one month you cannot have two different instruments. Even through the ECS, a 50:50 sharing is not allowed. It is best that one person bears the entire burden of the EMI, while the other's salary is used to run the household."
INCOME FROM THE PROPERTY
"As per section 22 of the Income-Tax Act, 1961, one of the basic conditions for charging incometax on income from house property is that the assessee should be the owner of such a property," says Surana. "Under the existing provisionsof the Income-Tax Act, 1961, in case the purchased property jointly owned by a couple is let out, then the rent received/receivable from such property would be taxed in the hands of both the co-owners (in proportion to the ownership)," says Saiya of MZS & Associates. "Thus, the total rental income from a such let-out property would be divided amongst the two co-owners, thereby reducing the taxable income and tax liability in the hands of the individual co-owner as against the amount in case of a single owner."
The proportion of ownership of the house also plays a role in ascertaining your tax benefits. "The income from house property chargeable to income-tax will be divided between the coowners according to their respective share in the property," says Surana. So, how would you plan the ownership of the property? "The percentage in co-owning the house property may be decided based on the quantum of taxable income in the hands of the co-owners," says Surana.
Also, you would need to keep certain documents in place that show the proportion of ownership and contribution towards the housing loan, which will ensure that you do not miss out on any benefits. "It is advisable to lay out details of ownership and initial contribution in the purchase agreement itself," says Saiya. "A certificate from the bank (from which the loan has been taken) showing annual contribution by each co-owner to the housing loan would help the couple avoid any tax issues at a later date," he says.
Source : Economics times : http://articles.economictimes.indiatimes.com/2011-05-26/personal-finance/29586171_1_joint-home-loan-joint-ownership-deduction
Joint Home loan advantage
The most significant advantage of a joint home loan is the increase in home loan eligibility. Incomes from all joint home applicants are pooled in to enable the applicants to obtain a higher loan amount towards purchasing their dream home. All the joint home applicants are eligible for tax rebates under Section 80 C for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid.
There are a number of advantages when you combine incomes and apply for a joint home loan. A bunch of these advantages are detailed here for your reference.
a. The most significant advantage of a joint home loan is the increase in home loan eligibility. Incomes from all joint home applicants are pooled in to enable the applicants to obtain a higher loan amount towards purchasing their dream home.
b. All the joint home applicants are eligible for tax rebates under Section 80 C for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid.
c. Another advantage of jointly taking a home loan is that all the borrowers can simultaneously avail these income tax rebates, thus maximizing the tax benefits of the home loan.
d. The number of people who can avail a joint home loan can be anywhere between 4 and 6, depending on their individual credit profiles.
e. The one criteria banks insist on is that all co-owners of the property should also be co-applicants but the reverse need not be true.
Who can take a joint loan?
– A married couple or a parent and child can take a joint loan.
– Some banks allow brothers to take a joint home loan provided they will both be co-owners of the property. Banks insist that all co-owners of the home must be co-borrowers in a joint home loan.
Exceptions: Sisters, friends or unmarried couples living together are, generally, not allowed such loans by banks.
Do both borrowers get tax benefits?
Yes. You as well as the co-borrower can avail tax rebates on the principal and interest repaid on the loan.
This way you can maximize your tax benefits.
Source: http://www.bankbazaar.com/guide/joint-home-loan-advantage/
Advantages and disadvantages of home loan in joint names
A home loan can be taken in your individual capacity – in your single name. Or it can be taken in joint names, usually along with your spouse.
There are pros and cons of doing this. Read on.
In “An introduction to home loans and factors to consider”, we saw the basic things you should look for while evaluating a home loan offer from a bank, and while comparing the home loans from different banks.
But apart from these basic factors that you need to consider for a home loan / mortgage, there is another aspect that is equally important, and bothers most of us – should the home loan be in a single name, or in joint names? What is better? What are the benefits, and drawbacks (if any)?
Let’s find out.
Advantage 1 – Increased Loan Amount
How do banks sanction the home loan amount? There are many factors, but an important factor is the Equated Monthly Installment (EMI) as a percentage of your monthly pay.
Banks ensure that the EMI as a proportion of your monthly income is not so high that it becomes a burden on you. Banks do this in their self-interest: A high EMI to monthly salary ratio means that the possibility of you defaulting on a home loan EMI would be high, thus increasing the risk for the bank.
So, as a rule of thumb, the higher your income, the higher would be the sanctioned loan amount.
But what if you need a higher loan? Your income is fixed – you can not increase it for taking the home loan!
The easiest way to fix this is to take the home loan in joint names. Usually, you would take the home loan along with your spouse.
In this case, the bank combines the incomes of both the applicants, and thus, can sanction a proportionately higher loan amount.
Example:
Let’s say your income is Rs. 5 Lakhs per annum. On an individual basis, let’s say you are entitled for a home loan of Rs. 20 Lakhs for 20 years.
If you take the loan in joint names with your spouse, who also earns Rs. 5 Lakhs per year, together, you can potentially get a home loan of Rs. 40 Lakhs for 20 years!
Advantage 2 –Increase in Income Tax Benefits
We know that taking a home loan provides tremendous income tax benefits. (Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage” for more on this).
But when you take a home loan in joint names, and pay the EMI together, both the applicants get the income tax benefits.
And the best part is that the upper limits of tax benefit (Rs. 1 Lakh for principal repayment under Sec 80C and Rs. 1.5 Lakhs for interest payment under Sec 24) apply individually. That is, both you and your spouse (or co-applicant) would be able to claim IT benefits upto these limits!
(Please read “Saving Income Tax – Understanding Section 80C Deductions” to know more about IT benefits u/s 80C)
Depending on your income levels, this can be an enormous benefit!
Example 1:
Let’s say you and your spouse both earn Rs. 6.5 Lakhs per year.
For the home loan, you need to repay Rs. 90,000 per year as principal, and Rs. 1,45,000 as interest.
If the home loan is in just your name, both these deductions would be available only to you. Thus, your taxable income would be:
Rs. 6,50,000 – Rs. 90,000 – Rs. 1,45,000
Which is Rs. 4.15 Lakhs.
The income tax saving would be:
(Rs. 1,50,000 * 30%) + (Rs. 85,000 * 20%)
= Rs. 62,000.
But if the home loan is in joint names, and both you and your spouse repay the EMIs equally, both of you would get equal benefits.
Thus, the taxable income for each of you would be:
Rs. 6,50,000 – Rs. 45,000 – Rs. 72,500
Which is Rs. 5,32,500 each.
The income tax saving would be:
(Rs. 1,17,500 * 30%)
= Rs.35,250 each, or Rs. 70,500 total – an extra gain of Rs. 8,500 in our example!
(Note: The calculation uses IT slabs applicable to FY 2008-09. To know about the applicable tax slabs, please read “Income Tax (IT) Slabs / Brackets – FY 2008-09 AY 2009-10”)
(To know the difference between FY, AY etc, please read “Income Tax (IT) Jargon – Financial Year (FY), Assessment Year (AY) and Previous Year (PY)”)
Example 2
Let’s say you and your spouse both earn Rs. 10 Lakhs per year.
For the home loan, you repay Rs. 1,40,000 per year as principal, and Rs. 2,50,000 as interest.
If the home loan is in just your name, both these deductions would be available only to you – but subject to the upper limits (or caps). Thus, your taxable income would be:
Rs. 10,00,000 – Rs. 1,00,000 (for principal repayment) – Rs. 1,50,000 (for interest payment)
Which is Rs. 7.5 Lakhs.
The income tax saving would be:
(Rs. 2,50,000 * 30%)
= Rs. 75,000.
But if the home loan is in joint names, and both you and your spouse repay the EMIs equally, both of you would get equal benefits.
Thus, the taxable income for each of you would be:
Rs. 10,00,000 – Rs. 70,000 (for principal repayment) – Rs. 1,25,000 (for interest payment)
Which is Rs. 8.05 Lakhs.
The income tax saving would be:
(Rs. 1,95,000 * 30%)
= Rs. 58,500 each, or Rs. 1,17,000 total – an extra gain of Rs. 42,000 in our example!
Disadvantage of a home loan in joint names
There are these fabulous advantages of taking a home loan in joint names. So, is there any downside?
Well, as such, there is no disadvantage. But you might want to consider the following from a long term planning perspective.
If both you and your spouse are working, you might want to buy another house sometime in the future.
Now, the income tax act says that if a person has more than one house in his name, one of them is treated as self occupied, and another is treated as let-out – even if it is not actually let out on rent.
You would need to pay income tax on the rent received if this second house is actually rented out. But if it is not rented out, it is deemed as rented out, and you would have to pay income tax on an amount that you would have received as rent as per prevailing market rates.
That is, you pay tax on an income that you are not even earning!
Why is this relevant in our discussion? Because if you have your house in joint name with your spouse (which is a precondition for availing a home loan in joint names), and if you purchases another house in the future, it would be treated as your second house!
If you buy your first house in a single name, the other house can be purchased in the name of your spouse – thus, both of you would have just one house, and won’t have to pay income tax on an income that you don’t even earn!
(Of course, if you actually rent out the second house, this becomes irrelevant)
Again, as mentioned earlier, this is relevant only from a long-term planning perspective.
What should you do?
So, should you go in for a housing loan in joint names or not?
Take the home loan in joint names if:
- You need a higher loan amount
- The income tax savings by opting for a joint loan is significantly higher than a single-name loan
Avoid taking a home loan in joint names if:
- You can do with the loan amount available as a single applicant
- The income tax savings by opting for a joint loan is not significantly higher than a single-name loan
- You plan to purchase another house in the future
Source : http://www.raagvamdatt.com/advantages-and-disadvantages-of-home-loan-in-joint-names
Home loan prepayment
http://www.getmoneyrich.com/home-loan-prepayment-guide-india/