How to maximize tax benefits on a joint home loan 

Some of us think that taking a loan to buy a residential property is not a good idea and so, they start saving some amount from their monthly income into recurring investment or a Systematic Investment Plan (SIP) offered by mutual funds. 

However, financial planners recommend that for acquiring a house for self-use, one should go for a housing loan and pay EMIs in place of going for recurring investment or SIP in other investment product. Let's discuss the benefits of taking a home loan under income tax provisions. 

One can get tax benefits through home loan under two different Sections of Income Tax Act.

a) Under Section 24 - Deduction on interest on home loan for self-occupied property up to Rs 2 lakh. 

b) Under Section 80C - Deduction on repayment of principal amount on home loan up to Rs 1.5 lakh. 

Let's take an example that Mr. X takes a home loan on which he pays Rs 1 lakh as EMI, i.e. Rs.12 lakh in one year. Out of Rs 12 lakh which he pays every year, Rs 4 lakh goes towards repayment of principal home loan and the remaining Rs 8 lakh towards the interest of the loan. 

Tax Benefits under Section 24 and Section 80C: Mr. X is eligible to claim tax benefits under Section 80C for the principal repayment of the home loan and under Section 24 for interest components. He can claim deduction up to Rs 1.5 lakh along with all other permissible instruments like, life insurance premium, PPF, ELSS, NSC etc under Section 80 C and up to Rs 2 lakh under Section 24. 

Total deduction will be Rs 3.5 lakh and if Mr. X is in the highest tax slab, he will get a tax benefit of Rs1,05,000.

Tax Benefits on Joint Home Loan: One can avail tax benefit on home loan up to Rs 1.5 lakh under Section 80C and 2 lakh under Section 24. But if you go for a joint home loan along with your spouse in the ratio of 50: 50, then both of you can claim these benefits separately. So the combined limit will be Rs 3 lakh under Section 80C and 4 lakh under Section 24. This can reduce your overall cost of loan for the family considerably.

Total deduction will be Rs 7 lakh and if both spouses are in the highest tax slab, they will get a tax benefit of Rs 210000/- which is just double compared to an individual home loan, although this provision may vary from person to person. 

Before going for a joint home loan, you should mutually work out your ownership share if you wish to optimize the tax benefit. That is, if you and your spouse own the house jointly in the ratio of 50:50, both can claim deductions in equal proportion. Therefore, if your tax slabs are different, you need to work out your ownership share in a manner that the spouse in the higher tax bracket owns a bigger share. 

Please note that it is essential to be co-owners to be eligible for tax benefits. The co-ownership share also plays a role in determining your deductions. 

(The author is Group CEO & Director, Bajaj Capital) 

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