Discover the Many Benefits of Joint Property Ownership
Co-owners can save capital gains tax on house sale proceeds! Popular and little-known facts about property co-ownership uncovered.
In India, as is the case elsewhere with salaried individuals and entrepreneurs, tax saving is a recurring and critical annual goal. One that demands careful planning and implementation at the beginning of the financial year in order to reap benefits at the end of it.
A home loan is a sough-after tax saving tool in the hands of a salaried individual in India. But buying a house can be a daunting task that demands cash in hand for down payment, financing and a healthy credit score besides numerous personal and family choices. Not just that. A home buyer incurs additional expenses by way of brokerage, stamp duty and registration. Fiscally speaking, a home loan is the beginning of a years-long journey of financial liability and discipline. The flip side is the satisfaction of home ownership and the uncountable benefits of having your own home.
But what about the tax-saving facets of buying a home loan? There are multiple benefits of financing a home in terms of tax savings, including home loans being the smartest way to save money. For the sake of this story, we focus on the tax benefits of joint property ownership.
Who is eligible for joint property ownership?
Two or more people with proven familial ties can own property jointly. Married couples, brother-sister, mother-son, father-son and brothers. Joint ownership increases loan eligibility for co-owners, especially married couples who are both salaried.
What are the advantages of joint property ownership?
1. Increased loan eligibility
The joint incomes of working married couples qualify them for higher eligibility than a single-income applicant as well as lesser-known benefits for women co-applicants. Lenders take a favourable view of joint-ownership as it reduces the risk of default and bad debt.
2. Reduced debt burden
The debt burden, which can be overwhelming during the first few years for salaried individuals, can be shared between co-owners, ensuring not just reduced liability for an individual and greater peace of mind, but also a hedge against unforeseen eventualities like medical emergency, job loss and economic downturn.
3. Lower interest rate and stamp duty concession
Several banks and home financing institutions offer concessional interest rates for women co-applicants. Many state governments too offer lower stamp duty rates for women.
4. Smooth property transfer in the case of a co-owner’s death
In India, a surviving spouse encounters no legal problems in claiming their right on the property of a deceased co-owner. The property can be transferred hassle-free to the surviving spouse/co-owner(s) by registering the property in their name.
What are the tax benefits of owning a property jointly?
1. Tax deduction for each co-owner of self-occupied property
Co-owners of a self-occupied house can share the benefit of principal repayment up to the overall limit of Rs 1.5 lakh under Section 80C of the IT Act. For instance, each co-owner can claim a deduction of up to Rs 75,000. Each co-owner can also claim deduction on interest paid up to Rs 2 lakh, totalling Rs 4 lakh, which is twice the deduction available to a single owner.
2. Tax deduction for each co-owner of rented property
Similar to deductions on principal and interest, co-owners can claim deductions on rented property where the rental income is equally divided between the owners. While rental income increases the overall income, the tax burden reduces for each owner. For example, if both co-owners earn an annual income of Rs 8 lakh each and rental income of another Rs. 4 lakh their total individual income is Rs 10 lakh each. If only one of them owns the rented property, that individual’s total income would be Rs. 12 lakh and push that individual from the 20% to 30% tax slab according to current income tax rates.
3. Exemptions in capital gains from sale of house and investment in bonds
When co-owners sell a house, the capital gains are calculated separately for each owner, giving each the benefit of Section 54. Each co-owner can use proceeds from the sale to buy another house within a stipulated time and reduce taxable capital gain.
Proceeds from the sale of a house can also be invested in specified bonds, such as those by National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC). Under Section 54EC, a single home owner can claim a tax deduction of up to Rs. 50 lakhs but in the case of jointly held property, co-owners can invest separately in these bonds and claim Rs 50 lakhs deduction each.
In conclusion, the benefits co-owning a house far outweigh the disadvantages. Socially, legally, mentally and fiscally, joint ownership spreads the cheer to every home owner instead of just one. If you are planning to take a home loan jointly, explore our Home Loan service or get in touch with us to get the best joint home loan deal for you.