Can you claim full tax benefits if your co-borrower loses their job?
New Delhi, Feb 27, 2025
Tax deductions are typically available based on each co-borrower's ownership share in the property and their individual contributions toward loan repayment
Taking a joint home loan is a common practice among individuals looking to purchase a property. This approach not only helps in sharing the financial burden but also offers significant tax benefits under the Income Tax Act. But what if one of the co-borrowers loses job? Can you still claim full tax benefits on a joint home loan? Let us explore how tax benefits can be maximised even in such challenging situations.
Co-borrowing does not necessarily mean co-ownership and hence while a co-borrower is responsible for liabilities taken for purchase of house but may not be co-owner of the house unless the agreement between the parties show that there is co-ownership.
“In the given situation where 100 per cent of the income from house property is reflected in the tax return of individual but to enhance the capability to borrow, there are co-applicants or co-borrower, the instalments paid by the co-applicant or co-borrower is in nature of loan extended to the 100 per cent owner and hence such co-applicant/co-borrower cannot claim any tax benefit under section 80C of the Income Tax Act. Consequently, in case of co-ownership cum co-borrowing, only share of repayment which is linked to one’s share in property is entitled to be claimed by way of deduction,” said Sandeep Shah, partner Cignas.
Illustration:
| A | B | ||
| Co-owner | Yes | No | B cannot claim any tax benefit even though B may be co-borrower/co-applicant |
| Co-owner/ co-borrower | 25% | 75% | A can claim only 25% of the loan amount even though due to failure of B, A has paid 100% of the instalment or vice versa. |
For self-occupied properties, a deduction of up to Rs 2 lakhs can be claimed for interest paid on a housing loan when calculating income under the head “house property”. This typically results in a loss from such property, as no income is generated from it. There is no limit on the number of individuals who can participate in the loan, provided it is demonstrated that the total interest claimed as deduction does not exceed the actual interest paid.
“For instance, if three individuals are co-borrowers on a housing loan, each can claim the benefit of up to Rs 2 lakhs of interest. The eligibility for this deduction is not affected by the employment status of the borrowers. Therefore, even if a borrower leaves their job to start a business or retires, they can continue to report the loss from the housing property due to the interest paid, and claim the benefit of set-off from other income heads, as per the law,” said Rajarshi Dasgupta, executive director -Tax, AQUILAW
Strategies to maximise tax benefits
To maximise tax benefits, it is crucial to maintain detailed records of loan repayments and ensure that both co-borrowers are co-owners of the property. This is because tax benefits are only available to co-owners who have a share in the property.
Documentation: Ensure that the loan documents clearly state the ownership percentage of each co-owner. This will help in determining the proportion of tax benefits each can claim.
Proportionate claim: Each co-borrower should claim tax benefits based on their share of the loan repayment.
Tax planning: Consider consulting a tax advisor to optimise tax planning. They can help in structuring the loan repayment and ownership shares to maximize tax deductions.
[The Business Standard]
