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Loan on house property

Bhawna Upadhyay (Power Industry) (87 Points)

31 July 2013

What way one person can save tax by having a Housing Loan. And what are the total deductions available under IT Act. And Further can the ownership of House be in Joint Name and the benefit of Tax Deduction be claimed in Joint Purchasers return.

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4 Replies

CA Dhruva Kalamanji (Chartered Accountant ) (1996 Points)
Replied 31 July 2013

There are two sections of the “Income Tax Act” of India which will allow you to get a deduction if you have taken a home loan; this of course ignores home loans from “private sources” (Friend, Family, etc). The two sections are here under.

Sec 24(b) of the Income Tax Act, 1961
Sec 80(c) of the Income Tax Act, 1961

The Section 24(b) is with respect to the “Interest Paid” on the Home Loan and Section 80(c) is with respect to the “Principal Repayment” of the Home Loan.

The Section 24(b) of the Income Tax Act, 1961 is applicable on Home loan for purchase of house or construction of the house property. You can avail a deduction of up to Rs. 1,50,000 of your total tax liability, Also reconstruction or renewal or repairs is eligible for deductions under the said section

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CA Dhruva Kalamanji (Chartered Accountant ) (1996 Points)
Replied 31 July 2013

Yes if the property is in joint name then proportionate tax benfit is available-

Related article:

Buying properties jointly with one’s spouse is very common. The wife’s name is added as a precautionary or safety measure, that is, in order to retain ownership or smooth transfer of ownership in the case of any eventuality like the husband's death. But, in such cases the property purchase may or may not be shared between the spouses. Typically, the husband funds the property purchase while wife is just a co-owner.

As a result, it is assumed that the beneficial owner is the husband and all liabilities and rights — legal and / or tax-related — should ideally be the husband’s. But, this may not always be the case.

Recently, Kapil Kumar (named changed) claimed exemption (under Section 54F) for capital gains he earned from sale of a plot of land by buying another residential property. The twist was that though all payments for purchase of the piece of land were made by Kumar, the house was purchased jointly by Kumar and his wife.

As a result, the Assessing Officer (AO), allowed Kumar to claim only 50 per cent of the exemption. Reason: The wife was a joint owner and hence had a share in the tax exemption

Yogesh Shah (Managing Corporate Finance) (1051 Points)
Replied 31 July 2013

Hi Bhawna,

As per my knowledge, in case of joint ownership and the house is self occupied then benefit of NIL value is enjoyed by both the joint owners. If the house is let out, then share in property is relevant. If it is 50 : 50 then rent received will be taxable at 50% in hands of each.

However, in case of Interest repayment and Loan Principal repayment, there is a different case (applicable irrespective whether house is self occupied or let out). Interest paid is available for deduction on accrual basis. But who will pay accrued interest is the crucial point. If only one person will pay the interest then only he will be entitled for deduction u/s. 24, and the other owner will not.

Similarly, in case of principal repayment u/s. 80C where dedcution is available on payment basis, who repaid the principal, does matter. If both have paid principal from their accounts, then they both can claim.

This is my opinion. Other views are welcome.