Maximizing Tax Savings with Joint Home Loans for Spouses

Ahmedabad-based Arjun Saxena and Kavya Saxena purchased a flat with an annual home loan interest of ₹3 lakh. If Arjun had taken the loan alone, he could claim only ₹2 lakh under Section 24B, losing the tax benefit on the remaining ₹1 lakh. Instead, they chose joint ownership with equal EMI contribution.

The ₹3 lakh interest is split into ₹1.5 lakh each, well within the ₹2 lakh limit, allowing both to claim their full share. Together, they deducted ₹3 lakh from their taxable income, saving ₹90,000 in tax compared to ₹60,000 if only one person had claimed it. By sharing the loan, the couple increased tax savings and reduced their effective borrowing cost.

Co-borrowers can claim higher interest relief. Section 24(b) allows a maximum deduction of ₹2 lakh per person for home-loan interest on a self-occupied property. “If there is only one owner, the deduction is capped at ₹2 lakh, even if the interest paid is higher,” says Abhishek Soni, CEO, co-founder, Tax2win, a tax filing portal. However, this deduction is available only under the old tax regime. In fact, the old tax regime is financially beneficial primarily when the home loan interest deduction is claimed.

If a property is let out, and if it had been acquired or constructed by the use of borrowed capital, then the entire interest would be allowed as a deduction against the rental income. In such a case, there is no limitation of interest of ₹2 lakh, says Anil Harish, Partner, D.M. Harish & Co, a law firm. If there are two co-owners who are also co-borrowers and both are paying the EMI, and the property is self-occupied, then each person is entitled to their own separate ₹2 lakh limit. Together they can claim up to ₹4 lakh.

When the annual home-loan interest crosses ₹2 lakh, a single owner hits the deduction cap under Section 24 B. This means even if the actual interest paid is higher, only ₹2 lakh can be claimed. As a result, the remaining interest offers no tax relief, raising the overall cost of borrowing. However, with two co-owners who are also co-borrowers, each person is entitled to their own ₹2 lakh limit. By splitting the loan interest, both owners can maximise the available deduction. This directly increases tax savings and lowers the loan’s effective cost, especially when both fall in higher tax slabs.

For example, if the total annual interest is ₹4 lakh and both owners fall into the 30% tax bracket, a single owner can claim only ₹2 lakh, saving ₹1,20,000 in tax. The remaining ₹2 lakh is fully out-of-pocket, making the post-tax interest cost ₹3.4 lakh. In contrast, if the loan is jointly held with a 50–50 split, each owner can deduct ₹2 lakh, resulting in a combined tax saving of ₹1.2 lakh and reducing the post-tax interest cost to ₹2.8 lakh.

In effect, joint ownership doubles the deductible interest from ₹2 lakh to ₹4 lakh, boosts tax savings by ₹60,000, and lowers the effective annual cost of the loan by the same amount. For high-income households, this structure can meaningfully improve the affordability of home loans.

The home-loan interest deduction is split in the same ratio as EMI contribution, not ownership. Each co-borrower can claim only their share, subject to the ₹2 lakh limit, says Soni. If the EMI contribution is split between two co-borrowers in a 60:40 ratio, the interest allocation changes accordingly. Person A, contributing 60% of the EMI, has an interest share of ₹2.4 lakh. However, under Section 24 (B), the maximum deduction allowed per person is ₹2 lakh, so person A can claim only ₹2 lakh. Person B, contributing 40% of the EMI, has an interest share of ₹1.6 lakh, which can be fully claimed. The total deduction available in this scenario is ₹3.6 lakh.

If the EMI contribution is split in a 70:30 ratio, person A’s interest share becomes ₹2.8 lakh, but the allowable deduction is capped at ₹2 lakh. Person B’s share of ₹1.2 lakh can be fully claimed. The total deduction in this case is ₹3.2 lakh. The allowable deduction is calculated as the interest multiplied by the EMI share, subject to a maximum of ₹2 lakh per person, says Soni.