A marriage often comes with the promise of sharing your life and all its ups and downs with your better half, complete with the emotional and financial responsibilities that come along. This holds true for something as significant as buying a house as well. Not only does the co-ownership of a house proves to be a great romantic gesture, but can also be seen as a smart financial decision, considering the benefits that it can entitle you to.
Let us explain the same through an example. Considering that you take a joint loan for a home that you wish to co-own with your spouse. If you and your spouse both enjoy a taxable income, you can both claim exemptions on the principal amount as well as the interest. Then again, you will be both liable for the same, thus reducing your individual liability significantly.
Here you must note that most banks and lenders insist that co-owners of the house need to be co-borrowers, as well. However, the reverse is not mandatory. That being said, only if co-borrowers are co-owners can they seek and enjoy the relevant tax rebates. The tax benefits are usually in accordance with the share in co-ownership of the property.
Remember, the maximum tax deduction for an individual with respect to a Home Loan is 2 Lakhs. Hence, if you and your better half, both apply for the relevant tax benefits, you can conveniently save a deduction worth 4 Lakhs, which is arguably a substantial amount. As mentioned earlier, the tax benefit is offered in the same proportion, as that of the share in the loan availed by both of you.
Before you go ahead to make claims for getting an exemption on tax. You must enter into an agreement with your spouse, which contains the details of the ownership share as well as that of the Home Loan availed towards the payment of the property. This agreement must be made on a stamp paper of 100. The agreement must ensure that both, you and your partner get your fair share of deduction.
In order to claim your tax deduction, you will be required to furnish a copy of the ‘Borrower Certificate’ issued by the lender. In this case, you will both be required to provide this certificate. Along with this certificate, each of you must also submit the copy of the signed agreement.
If however, due to any reason, you fail to claim the deduction, you can always place a request for a refund while filing tax returns. The calculations bring us back to our starting point. It is in your best interest to be co-owners of the property as well as co-borrowers of the loan, with your spouse.
When it comes to the repayment of your joint loan, you must come to an agreement with your spouse which can help you pay the equated monthly instalments (EMIs) without issuing two cheques. Due to the limitations of the internal banking system, a lender cannot allow two separate cheques for the servicing of a single EMI. It is for this very reason, you ought to pick one of the following alternatives as a way of repaying your loan:
You can issues cheques from a joint account that you are held by you and your partner.
You can divide the number of instalments with your partner. Hence, if you choose to pay 6 EMIs per year, your spouse can issue cheques for the remaining 6.
You can pay all the EMIs single-handedly, and ask your spouse to reimburse their share.
While the first two alternatives offer added convenience, the last alternative may sometimes prove to be cumbersome, especially with respect to claiming the tax deductions. Besides, even lenders and housing finance corporations prefer the first two alternatives as compare to the last one.
We hope that you are now well aware of all the nuances pertaining to co-applying for a Home Loan with your spouse. For the better part of it, this alternative will prove to be extremely beneficial for you, as it will enable you to enjoy double the tax benefits, while reducing your individual obligation by half. Looks like there is a thing known as an ‘ideal win-win situation’!
Also read: Understanding the Concept of FOIR
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