Home loan with spouse - help required on taxation

Tax planning 399 views 4 replies

Ashok

72 Points Joined March 2014

I am planning to take a home loan with my spouse in Kanyakumari. We are taking a LAND HOME and a HOME LOAN (both together as a single loan with HDFC).

I stay in Chennai,claim HRA in Chennai as I work here but the home I am getting is in a different place (my hometown in Kanyakumari). My yearly total EMI comes to Rs.9 Lakhs (both of us put together) of which the interest part is around 4.5 Lakhs per year in total.

My concern is only about taxability of the interest part (Section 24). I am not concerned about the principal part under 80C.

After going through all the sections and possiblities I am thoroughly confused, need your inputs please.

The decision to be taken is simple - how to split the loan between me and my wife (% split of loan). It depends on ensuring max tax benefits that both of us get. She falls under 20% bracket and I fall under 30% bracket.

My understanding is that

A) I can claim tax exemption only for EMIs post completion of construction of the house.
B) For the other EMIs that I paid before completion of construction, I will have to claim it by proportionating it over the next five years.

My questions are -

1) If the land/home is in my wife's name will I be eligible for interest deduction (i.e. if the loan alone is split between us and land/home is in my wife's name only)?

2) Can the entire interest (land + home) get me tax benefit? Or will I have to split only home construction excluding land buying amount and claim EMI only for the home construction part?

3) If both of us split the loan into 50%-50%, can both claim deduction of 2.25 Lakhs each?

4) Given my situation (home not self occupied, with me staying in Chennai and I claim HRA here) can I claim more than 2 lakhs Interest as tax free? Is there a limit of 2 lakhs in my case.

5) My EMI starts from April 2016. I will complete my house in December 2016. Can the EMIs paid from April 2016 till November 2016 can be included under FY 16-17 deduction? Basically, the term "completion of construction of house" refers to financial year of completion or month of completion?

5 a) If I can claim only from December 2016, can I proportionally divide the EMI from April 2016 till November 2016 to the next five years.

If someone can reply point by point, it would be of great help. Thanks in advance

Replies (4)

Sivaramakumar

GM-ACCOUNTS

142 Points Joined June 2012

Dear sir,

1.Spliting of the loan does not entitle equal share of deduction, ownership of land and building is to be made jointly-it is mandatory.

2. Post EMI (PRIN + INT ) after completion and possession of house is only eligible for deduction u/s 80c and Sec 24.( in your case dec 2016 )

3.Pre EMI interest can be claimed equally for a period of 5 years from the financial year in which your full EMI commences.( in your case in the year 2016- 17)

4.Pre EMI principle paid ( if opted for full EMI option with your banker) from the date of sanction of loan is not eligible for deduction u/s 80 C.( since under construction not allowed)

5. If you have 2 different loans for land and construction then Principle and interest on land loan is not eligible for deduction.

6.After completion of construction if the house is not self occupied by you it would be considered as deemed to be letout provided you do not derive any benefit from the property throughout the year and you are the owner of the property. and the Annual value of the property is considered as Nil. and you can claim deduction for interest within the limits.

7. it would be better to apply the loan in the name of the owner of land and you stand as a co-applicant to the loan. or own the property jointly and claim the benefits jointly.

Ashok

72 Points Joined March 2014

Originally posted by : Sivaramakumar
	Dear sir, 1.Spliting of the loan does not entitle equal share of deduction, ownership of land and building is to be made jointly-it is mandatory. 2. Post EMI (PRIN + INT ) after completion and possession of house is only eligible for deduction u/s 80c and Sec 24.( in your case dec 2016 ) 3.Pre EMI interest can be claimed equally for a period of 5 years from the financial year in which your full EMI commences.( in your case in the year 2016- 17) 4.Pre EMI principle paid ( if opted for full EMI option with your banker) from the date of sanction of loan is not eligible for deduction u/s 80 C.( since under construction not allowed) 5. If you have 2 different loans for land and construction then Principle and interest on land loan is not eligible for deduction. 6.After completion of construction if the house is not self occupied by you it would be considered as deemed to be letout provided you do not derive any benefit from the property throughout the year and you are the owner of the property. and the Annual value of the property is considered as Nil. and you can claim deduction for interest within the limits. 7. it would be better to apply the loan in the name of the owner of land and you stand as a co-applicant to the loan. or own the property jointly and claim the benefits jointly.

Thanks Sir for replying with clarity. Just two clarifications - if you could help me with these.

Can both of us claim 2 lakhs each – is it possible?
If the property is deemed to be let out, will I be able to claim all Interest as deduction or only up to the limit of 2 lakhs Interest?

Sivaramakumar

GM-ACCOUNTS

142 Points Joined June 2012

1. if both are co-owner to the property , co- applicants to the loan, and the EMI payments made from your joint account each co-owner is elgible for 2 lakhs.

2.Since you are not occupying the property owing to your occupation at chennai,(exempted situation) you can still take your annual value to be Nil and would be eligible to claim only Rs. 2 lakhs, else if you let out the premises for any part of the year , you can claim the actual interest paid.

Ashok

72 Points Joined March 2014

Originally posted by : Sivaramakumar

1. if both are co-owner to the property , co- applicants to the loan, and the EMI payments made from your joint account each co-owner is elgible for 2 lakhs.

2.Since you are not occupying the property owing to your occupation at chennai,(exempted situation) you can still take your annual value to be Nil and would be eligible to claim only Rs. 2 lakhs, else if you let out the premises for any part of the year , you can claim the actual interest paid.

Thanks a lot sir.