Today, we will be talking about a different breed of animal altogether. As the aforementioned headline suggests, it happens to be one of the most hardworking life forms on the planet and also the most intelligent (ahhmm…ahhmm… issues like global warming and climate change have been just a side effect of this intelligence; if you get the drift). Here, we are talking about a creature at the planet’s peak of evolution. Apparently, he can build the biggest structures, harness atomic power, and measure the deepest oceans’ immeasurable depths.
No one, I repeat, no one can touch the level of creativity and hard work this creature can throw into just about anything and churn out something magical. The irony is, all these years of heavyweight evolution and yet, sometimes, this self-proclaimed God of a creature struggles to make ends meet, pay taxes, apply for home loans. Many even try to evade taxes, by the way! Someone has rightly said, life is a struggle, and the snapshot of this creature’s life accurately depicts that! But this struggle can be shared with someone you trust to lessen the financial burden in the form of a co-applicant while taking home loans.
Who could have wondered that such power and fragility could go hand in hand? Taking a cue from the last paragraph, we will discuss everything about availing joint home loans and their associated tax benefits. These include improved credibility, shared financial burden and many others, which we will discuss in this blog’s latter part. But before we jump right into it, let’s look at the brief takeaways.
In Focus: The Key Takeaways
- Why should you apply for a home loan with a co-borrower?
- Tax Benefits that come with Joint Home Loans.
- What must you know about claiming tax deductions on home loans?
Home Loan: The Definition
A home loan, unlike popular belief, is not a way to mortgage your future at an attractive interest rate. Fundamentally speaking, it is a specific amount of money an individual or co-applicants can apply for from a financial institution like a bank or a finance company. The purpose of this loan amount could be any of the following:
- To buy a new home
- Resale of an old home
- Construction of a new home
- Renovation of a home
Food for Thought: Should You Have a Co-Applicant in Your Home Loan?
The pro highlight of availing of a home loan with a co-applicant is sharing responsibility for the repayment of the loan amount. Yes, one major reason why most people opt for a joint home loan is to reduce the overall cost of interest while, at the same time, also being able to contribute to it. Majorly owing to this reason, even lending institutions are happy when applicants add their co-property owners while applying for home loans.
Tax Benefits on Home Loans: Why Availing a Home Loan with a Co-Applicant Must Be on Your Radar?
The first and foremost advantage of taking a home loan with joint owners in India is the array of tax benefits that usually come with it. For the unversed, the total interest paid on the home loan is applicable for deduction under section 24 of the Income Tax Act.
Also, the loan’s principal amount must be repaid and is eligible for deduction. This comes under section 80C of the Income Tax Act. Here are some promising benefits of home loans with co-applicant, which you must be aware of!
Loan Application and Approval Becomes Smooth
This is one of the primary advantages of applying for a joint home loan. Firstly, the combined income of the owners increases their loan eligibility; secondly, taking a joint loan also makes it easier for the borrower to secure a larger loan amount.
Lenders Don’t Mind Giving Out a Huge Loan Amount
With more than one person by your side as your co-applicant of the loan, even the lender gets assurance that the amount will be fully paid back with interest. Thus, the lender is ready to offer a relatively higher amount to the borrower.
Your Credit Score Climbs the Ladder
Applying for a home loan with a co-applicant improves your credit score rating. The credit score is directly proportional to the money management prowess of the borrower. Both go up or down simultaneously.
Management 101: The More We Share the Better
Two owners can better manage and share their responsibility when repaying the debt back as compared to a single person. It is because the primary applicant and his partner are equally responsible for sharing the burden and paying the debt back. This option takes a solid chunk of the distress away from the owner’s mind.
see also – Income Tax: Definition, Types, Rates, Forms, and Rules
What Else You Must Know About Home Loans: Section 24, Section 80C & Section 80EE of the Income Tax Act
| Section 24 | Section 80C | Section 80EE | |
| Deduction limit | Can claim deductions up to INR 2 Lakhs. | Can claim deductions up to INR 1.5 Lakh. | Can claim additional deductions upto INR 50,000. |
| Property construction | Property construction should be completed within five years of availing of the loan. | The property should not be sold within the timeline of 5 years after the borrower’s taking its possession. | The borrower must not own any other property or else he/she must be a first-time home buyer. |
| Claim | The deduction can be availed in 5 installments from the year the property’s construction was completed. | The deduction can only be claimed when the charges are incurred in the same year. | NA |
Joining the Dots: Claiming Tax Deductions on Home Loan
Gone are the days when stuck loans and panic attacks used to be synonymous with each other. Today, the entire scenario has changed by miles. Currently, it is so much easier to avail of tax benefits. All it takes is a scoop of knowledge with the added ingredient of financial wisdom. Here we are talking about the several clauses of the Income Tax Act, documents, and the smartness to claim and file them at the time of ITR.
The following are the important documents a borrower must have to claim tax deductions.
- One of the most important documents is the one that shows the ownership of the property.
- Documents that show the completion date of construction or the date of purchase of the property.
- Documents that showcase the details of the borrower’s home loan documentation, home ownership and the lender certification that showcases in detail the interest and principal components of the loan.
Wrapping Up
The tax benefits that come with home loans are changing the narrative of how borrowers think and approach home loans. The prevailing mindset is shifting because home loans are a feasible way to save money on taxes. Thus, you need to stay updated on the most recent tax laws. It will undoubtedly help you inch forward in a better direction and become the catalyst for scripting a better life for yourself and your loved ones.
