Joint home loans and tax benefits

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I availed of a home loan jointly with my father for a home in Udaipur.

Based on this I have two queries.

- Amit Parikh

Each month my father transfers half the Equated Monthly Installment amount to my account and the total EMI is deducted from my account.

Can we both claim the income tax benefit?

The tax benefits for loan repayments will be split in the ratio of the share in the home loan.

Let's do it with a very simple and basic example.

Cost of the apartment: Rs 100
Ownership share: 60% (you), 40% (father)
Loan: Rs 60

Amount to be brought in by you: Rs 60
Less actual contribution by you: Rs 20
Your share in the loan: Rs 40

Amount to be brought in by your father: Rs 40
Less actual contribution by your father: Rs 20
Father's share in the loan: Rs 20

Interest payment

The maximum limit of Rs 150,000 on interest paid will apply individually both you and your father. That means, the total deduction will be limited to Rs 300,000. Please check explanations to Section 26, Section 23 (2) and Section 24 (b) of the Income Tax Act.

Principal repayment

This falls under Section 80C, where the limit is Rs 100,000 for each of you.

Earlier, the principal repayment of home loan was restricted to only Rs 20,000, irrespective of how much you actually paid. Not so any longer.

If you are repaying a home loan and the principal repayment amounts to Rs 100,000, then you can claim the entire amount as a deduction. To understand this in detail, read All about Section 80C.

The tax benefits have to be shared in proportion to each one's share in the loan.

I hope you entered into an arrangement with your father when you started repaying the loan stating the shares of the loan. A suggested draft is provided here. You can do it on a stamp paper.

Sometimes, joint owners consider giving proportionate cheques for each EMI. Home loan companies are unlikely to accept proportionate payment of each EMI from both since their internal systems do not provide for accepting two cheques for the same EMI.

Another option is for one to pay, say, eight cheques and the other four.

Based on what you have stated in your mail, I am sure that you can each claim 50% of the amount of interest and principal to avail of the tax break. 

The bank is unlikely to give you a separate certificate, but you can make two copies of the certificate and submit it in your individual IT returns along with the formalised share agreement.

I currently reside in company leased accommodation in Noida.

My company has made an internal policy that in case the employee is not residing in the property for which home loan has been taken, no tax rebate would be given. Are they justified in doing so?

My entire explanation above and what I am about to mention is based on the assumption that you are a co-owner in the Udaipur property.

If that is so I cannot understand on what grounds your employer is denying the deduction to you.

Your case is squarely within section 23 (2) (b) of the Income Tax Act. In pure tax terms, the annual value of such a house will be taken as nil. Therefore the interest payable by you will be deductible subject to a maximum of Rs 1,50,000 per year.

Your employer's refusal to allow such a deduction is clearly not justified.

However, if they refuse to do so then you have no other alternative but to claim it as a refund while filing your income tax return. Read How to claim a tax refund for more details.

I purchased a home around a year ago in Mumbai. The building premises have not got the Occupancy Certificate from municipal corporation yet. Hence, the electricity bills still come under the name of builder.

If I want to sell my apartment, do I need the builder's permission?

- Ashu Gupta

This is a very specific situation for which a general answer cannot be given. It will depend upon the facts and circumstances of each case.

I suggest that you consult a property lawyer active in your city.

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Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.