Understanding Tax Deductions for Co-Borrowers and Co-Owners in Home Loans

In India, it is common for names of spouses, parents, and other family members to be included in property titles, either for convenience or to acknowledge their contribution to the purchase of the house. However, the Income Tax Act has specific rules regarding who can claim tax deductions on home loans. Just being a co-borrower on a home loan doesn’t automatically grant the right to claim tax deductions.

When it comes to home loans, tax deductions can be claimed on both the principal and interest payments under the old tax regime. Under the old tax regime, you can claim up to Rs 1.5 lakh for the principal amount under Section 80C and up to Rs 2 lakh for interest under Section 24B, provided the property is either occupied by you or your family or is rented out. If the property is not occupied or rented, no deductions can be claimed. Under the new tax regime, you can only claim the interest component, up to Rs 2 lakh, if the house is rented out.

Chartered Accountant Suresh Surana points out that, according to the Income Tax rules, the tax benefits for both principal repayment and interest are tied to ownership of the property. Additionally, being able to repay the loan is a key factor in claiming these deductions. Surana explains, “Therefore, if an individual is only a co-borrower but does not have ownership rights in the property, he/she would not be eligible to claim these tax deductions even if he/she contributes towards the EMI. To avail tax benefits, it is essential that the individual is both a co-owner and a co-borrower and contributes to the loan repayment.”

If the wife’s name is included in the property title as a co-owner but she did not contribute any money, can she still claim tax benefits? Simply being a co-owner of a property is not enough. Surana emphasizes that tax benefits can only be claimed by the person who has actually serviced the loan, i.e., repaid the principal and/or interest. If the individual has not made any financial contribution towards the loan repayment, they would not be eligible for claiming the associated tax deductions. In case of a tax dispute, you will have to provide documentation supporting ownership and repayment details to claim any deductions.

If the wife’s name is added as a co-owner of the property, does it also make her legally liable to partly pay the EMI limited to her share of the property? Prof. Dr. Swati Godbole, Associate Professor of Finance and Law at K J Somaiya Institute of Management, explains that unless a co-owner of a property becomes a co-borrower, they are not legally liable to partly pay the EMI limited to their share of ownership. The bank can recover the loan only from the borrower. Generally, in such cases, lenders require a No-Objection letter from the co-owner. However, it is important to remember that even if you are not the co-borrower, your share of the property is also pledged. Godbole adds, “Thus, in case of a default, the lenders have the right to initiate a sale process of the entire property to recover their money, and there is a risk of losing ownership of the property.” Most banks now require all co-owners to be co-borrowers to avoid legal complications.

Is it true that if a woman is only a co-borrower without ownership rights, she is not eligible to claim tax deductions? Godbole confirms that the tax deductions for borrowings for house purchases are covered under Section 80C and Section 24. For claiming these deductions, the individual, whether male or female, must be both a co-owner and a co-borrower. Therefore, a woman who is only a co-borrower without ownership rights is not eligible to claim tax deductions.

Is it true that home loan tax benefits on principal repayment and interest are available only if the individual is both a co-borrower and a co-owner of the property? Godbole clarifies that this is indeed true. Home loan tax benefits on principal repayment and interest are available only if the individual is both a co-borrower and a co-owner of the property. However, it is important to note that these deductions are available for a self-occupied property under the old tax regime and not under the new tax regime. The new tax regime only recognizes let-out properties and related deductions for loans taken.

If a woman's name is included in the property title as a co-owner but she did not contribute any money, can she still claim tax benefits? For a co-owner, in this case, a woman, to claim tax benefits, she needs to be a co-borrower and contribute to the payment of housing EMIs out of income earned by her or generated in her name.