ATM :: Opt for joint home loan to optimise tax benefits


Anil Chopra  | Published on: Dec 1 2014 12:22PM | The Tribune, India
ATM
Many of us think that taking a loan to buy a residential property is not a good idea and so, we start saving some amount from our 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 loan and pay EMIs in place of going for recurring investment or a 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 a home loan under two Sections of the Income Tax Act, 1961.

Under Section 24 – Deduction on interest on a home loan for a self-occupied property up to Rs 2 lakh.
Under Section 80C – Deduction on repayment of principal amount on a home loan up to Rs 1.5 lakh.

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

Tax benefits on home loan

Mr X is eligible to claim tax benefits under Section 80C for the repayment of principal amount 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 such, life insurance premium, PPF, ELSS, NSC etc under Section 80 C and up to Rs 2 lakh under Section 24.

The 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 Rs 1,05,000.

Tax benefits on joint home loan

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

The 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 2,10,000 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 optimise 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 an 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.

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 Ltd. The views expressed in this article are his own.

Source : http://goo.gl/dK6aH2

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