Co-owners can avail Tax Benefits of Home Loan

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Each co-borrower can claim this benefit to the tune of Rs 1.5 lakh, but the combined claim cannot increase the total principal repaid during the year

To enhance the eligibility for a home loan, borrowers often apply for the loan along with a co-borrower, in most cases, the spouse. However, just being a co-borrower does not make that person eligible to claim the tax benefit that comes with home loan repayment. There are various other criteria that have to be met before a co-borrower can claim the tax benefit.

Tax deduction

There are two components of a home loan—principal and interest. Principal repayment qualifies for tax deduction under section 80C of the Income-tax Act, 1961, which has an overall limit of Rs1.5 lakh. Each co-borrower can claim this benefit to the tune of Rs1.5 lakh, but the combined claim cannot increase the total principal repaid during the year.

Interest payment qualifies for deduction under section 24(B), which has an overall limit of Rs2 lakh. Again, all co-borrowers can claim tax deduction for the same from their respective incomes, but the total claim cannot exceed the actual interest paid.

Besides these two tax deductions available to all homeowners, irrespective of whether they are first-time buyers or own more than one property, there is additional deduction available to first-time homebuyer. This benefit is of up to Rs 50,000 under section 80EE of the Act

Eligibility criteria for co-borrower

First of all, a co-borrower should also be a co-owner of the house for which the home loan was taken. Just being a co-borrower and paying the home loan EMI without being a co-owner will not make you eligible to claim home loan deductions. A co-borrower can claim tax deduction based on property rights or her share in the property. For instance, A and B bought a property taking a joint home loan, and the property rights are in the ratio of 60:40, respectively. The amount of total home loan principal and interest paid during the year should be claimed in the same ratio—60:40.

It is advisable to maintain a joint bank account to pay back the home loan, in which each co-borrower contributes respective share of the EMI. This will also help in maintaining records of payment and help in tax filing.

In case a co-borrower dies or loses her job, the loan repayment responsibility shifts to the remaining co-borrower(s), and in such a case, they can claim tax benefit of the co-borrower who is no more or is not able to make the payment.

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