FINANCE SPECIAL......................... Taking a joint home loan with your spouse? Here's how you can save more tax

Taking a joint home loan with your spouse? Here's how you can save more tax

With the ever-spiralling property prices, obtaining a loan from a bank is almost inevitable. In double-income urban families it is now common to share the financial burden as well and apply for joint home loans. Taking a joint housing loan along with your spouse (assuming the other is an earning member) can increase your repayment capacity and also enhances the loan eligibility amount.

A joint housing loan can also bring tax benefits and this has been a big draw with many working couples. The Income Tax Act, 1961 (Act) allows both principal repayment (under Section 80C of the Act) and interest payments (under Section 24(b) of the Act) as deductions from your income. Thus, for the principal payment an individual can claim up to Rs 1.5 lakh per annum and on interest payment (on construction / purchase of self -occupied house property) up to Rs 2 lakh per annum.
So, you can save up to Rs 3.5 lakh per annum. This limit doubles in the case of a joint-loan.

Here's is a comparison of the tax benefits between a single housing loan and a joint one:

 Assumptions: Principal repayment during a financial year (FY) - Rs 5 lakh per annum and interest payment (assuming on self -occupied house property) during a FY - Rs 7 lakh per annum.

If this property is rented, then the rental income will also be taxable for the spouses in proportion of their share. Also, the entire interest of Rs 7 lakh can be claimed by the spouses in the proportion of their share of payment. Here's an example:

Assuming that the rental income earned during a financial year is Rs 20 lakh and the principal repayment during a financial year is Rs 5 lakh while the interest paid (assuming on self -occupied house property) during a year is Rs 7 lakh. Here's how your taxable income will be calculated. 

Also, from a wealth tax perspective, share of each spouse on the house can be claimed by them as exempt from wealth tax; as one house is exempt from wealth tax.

By Parizad Sirwalla 12 Dec, 2014