Reporting Joint Home Loan with Co-Borrower in ITR: Who Gets What?
- PRITI SIRDESHMUKH
- Sep 10
- 9 min read
A joint home loan is a common way for multiple individuals, typically spouses or family members, to pool resources to purchase a property. While joint loans offer benefits like higher loan eligibility and better chances of approval, they also come with tax implications that both co-borrowers should understand. The Income Tax Act allows certain deductions for home loan interest and principal repayments, but the eligibility for claiming these benefits varies depending on the nature of the loan arrangement. Let's explore the tax benefits available for joint home loan borrowers, the division of tax benefits, and how to properly report joint home loans in your Income Tax Return (ITR).
Table of Contents
Joint Home Loan Co-Borrower vs. Co-Owner: Eligibility for Tax Benefits
A key distinction when it comes to tax benefits for joint home loans is the difference between being a co-borrower and a co-owner. Co-borrowers are individuals who share responsibility for repaying the home loan, while co-owners hold legal ownership of the property.
In the case of joint home loans, both co-borrowers are eligible to claim tax deductions for the interest paid under Section 24(b)and principal repayments under Section 80C. However, the extent of the deduction depends on whether the borrower is also a co-owner of the property. If both co-borrowers are also co-owners, they can each claim a deduction for their share of the loan repayment.
It’s essential to note that the eligibility for claiming tax benefits under Section 80C and Section 24(b) depends on the person’s legal ownership status. Simply being a co-borrower does not automatically entitle one to claim the benefit unless they are also a co-owner. If the co-borrower is not a co-owner, they can still claim the interest deduction under Section 24(b) but not the principal repayment under Section 80C.
Tax Benefits and Their Division for Joint Home Loans
For joint home loans, the tax benefits are divided between the co-borrowers based on their share of the loan repayment. If both borrowers are co-owners, they can divide the total tax benefits in proportion to their ownership share, or if the share is not defined, they can split the benefits equally.
Interest Deduction under Section 24(b): The deduction for interest on home loans is allowed under Section 24(b) up to ₹2 lakh per year. Both co-borrowers can claim the deduction individually, depending on their share of the loan. If both are co-owners, each can claim a share of the ₹2 lakh interest deduction based on their proportion of ownership.
Principal Repayment under Section 80C: Under Section 80C, the principal repayment on home loans is eligible for a deduction of up to ₹1.5 lakh per year. Again, this deduction is available to both co-borrowers if they are co-owners. The deduction should be divided based on the proportion of the loan that each co-borrower repays.
Reporting Joint Home Loan in Income Tax Return (ITR)
Whenfiling the Income Tax Return (ITR), the co-borrower needs to report their share of the interest and principal repayment on the home loan. If both individuals are co-owners and co-borrowers, each will report their share of the interest under Section 24(b) and principal repayment under Section 80C separately in their ITR.
In ITR-1 and ITR-2, there are specific sections to report income from house property, and co-borrowers should fill in the details of their respective share in the joint property. The interest payments under Section 24(b) should be mentioned under the “Income from House Property” section, and the principal repayment under Section 80C should be reported under the “Deductions” section.
It’s essential to maintain proper documentation to substantiate the claims, such as the loan statement from the bank, the loan agreement, and the property ownership documents.
Practical Points to Remember for Joint Home Loans and Tax Filing
When it comes to joint home loans, the tax benefits associated with them can be a bit complex, as they involve multiple individuals and multiple tax provisions. In such cases, it's crucial to understand how the tax benefits are split and what documentation is required to claim them accurately. Below are key points that both borrowers should keep in mind when filing their Income Tax Returns (ITR) related to a joint home loan.
Proportional Division of Tax Benefits
Tax benefits for joint home loans must be claimed in proportion to each borrower’s share of the loan repayment and property ownership. It is essential that both parties (i.e., co-borrowers and co-owners) are clear on their respective shares of the loan repayment to avoid any confusion during the ITR filing process. For example, if two individuals jointly take a loan of ₹10 lakh, and they are both equally responsible for the repayment, each person can claim a 50% share of the deductions under Section 80C (principal repayment) and Section 24(b) (interest payment). If one person contributes more to the repayment or has a larger share in the ownership of the property, the claim on these tax benefits should be divided accordingly. This proportional division should be documented clearly, as discrepancies could lead to challenges during an assessment or audit by the tax authorities.
Co-ownership and Tax Deductions
When it comes to claiming tax benefits on a joint home loan, it's important to distinguish between "co-owners" and "co-borrowers." Only co-owners of the property, i.e., individuals whose names are on the property title deed, can claim the deduction for principal repayment under Section 80C of the Income Tax Act. However, co-borrowers who are not co-owners are eligible only for the interest deduction under Section 24(b). This distinction is important when multiple individuals are repaying a joint home loan but not all of them are listed as co-owners of the property. For instance, if one person is listed as a co-owner of the property and another is merely a co-borrower, only the co-owner can claim the principal repayment benefit, while both can claim the interest repayment benefit.
It’s also important to note that the total deduction under Section 24(b) for interest on home loan is ₹2 lakh, but this can be split among the co-owners or co-borrowers based on their respective shares in the loan repayment.
Documentation
Proper documentation is essential when filing ITR for joint home loans. Both co-borrowers must keep accurate records, including the home loan statement, the loan agreement, and proof of both principal and interest payments. These documents not only serve to substantiate the claims made on the ITR but are also crucial if the tax authorities require proof of the payments made towards the home loan. If any discrepancies arise during the assessment or in the event of an audit, having a clear paper trail will protect the taxpayers from potential penalties or re-assessments. It is advisable to keep these documents organized and readily accessible, especially if you plan to claim tax benefits for multiple years.
Loan Repayment Shares
It is crucial to define the share of the home loan repayment between co-borrowers at the outset. This share determines how the tax benefits will be divided. If the repayment shares are undefined or there is no formal agreement in place, the tax benefits should typically be divided equally between the co-borrowers. However, it’s always advisable to have a written agreement that outlines the specific repayment shares between the borrowers. This clarity will help in accurately claiming the deductions and will also prevent disputes in the future. For instance, if one co-borrower is repaying a larger portion of the loan, they should be entitled to a larger share of the tax benefits, provided this is clearly documented.
In cases where the repayment share is disputed or unclear, it’s important to communicate and agree on the proportions beforehand to avoid any confusion when filing the ITR. The tax department may request details of the share distribution in case of a detailed scrutiny or audit.
Conclusion
Joint home loans offer both financial benefits and tax advantages, but it’s important to understand the nuances of eligibility and the proper way to divide the tax benefits. Co-borrowers who are also co-owners can maximize their tax deductions for both interest and principal repayment, but the tax benefits should be claimed in proportion to the loan repayment share and ownership. Proper reporting in the Income Tax Return (ITR) is essential to ensure that tax benefits are accurately claimed and that all compliance requirements are met. For those who need assistance with tax filing, using platforms likeTaxBuddy mobile app ensures accurate filing, timely submission, and expert guidance on joint home loan tax claims.
FAQs
Q1: Can both co-borrowers claim tax benefits on the same joint home loan? Yes, both co-borrowers can claim tax benefits on a joint home loan, provided they are co-owners of the property. The tax benefits, such as the interest deduction under Section 24(b) and the principal repayment deduction under Section 80C, can be claimed by both, based on their respective share in the loan repayment. Each borrower must declare their share of the loan repayment in their respective ITRs, ensuring that the division reflects the actual repayment contributions.
Q2: How should the tax benefits be divided if the ownership share in the property is unequal? If the ownership share in the property is unequal, the tax benefits should be split based on the respective ownership percentage. If the ownership proportion is not clearly defined in the loan agreement or property documents, the tax benefits are typically divided equally between the co-borrowers. It’s important to review the property’s title deed or loan agreement to clarify ownership shares for accurate tax filing.
Q3: Can a co-borrower who is not a co-owner claim tax benefits? A co-borrower who is not a co-owner can claim tax benefits for the interest paid on the home loan under Section 24(b) but cannot claim the principal repayment deduction under Section 80C. This is because the principal repayment deduction is only available to co-owners of the property. Non-owners can still benefit from the interest deduction as long as they are making payments on the loan.
Q4: Do both co-borrowers need to report the joint home loan in their individual ITRs? Yes, both co-borrowers must report their share of the joint home loan in their individual Income Tax Returns (ITRs). The interest paid on the home loan should be reported under the "Income from House Property" section, and the principal repayment should be claimed under "Deductions" under Section 80C. Each borrower must report their proportionate share of the repayment, which should align with their financial contribution toward the loan.
Q5: What documents are required to claim tax benefits for joint home loans? To claim tax benefits for a joint home loan, co-borrowers will need several documents, including the loan statement from the bank or financial institution, the loan agreement, proof of the interest and principal payments made during the year, and the property ownership documents (e.g., title deed). These documents are essential to substantiate the tax claims and ensure accurate reporting in the ITR.
Q6: Is the tax benefit for home loan interest limited to ₹2 lakh per year for joint borrowers? Yes, the maximum deduction for interest on home loans under Section 24(b) is ₹2 lakh per year. However, if both co-borrowers are co-owners of the property, each co-borrower can claim the ₹2 lakh interest deduction separately, depending on their contribution to the loan repayment. If one co-borrower contributes more towards the repayment, they can claim a higher portion of the deduction.
Q7: Can the tax benefits for a joint home loan be claimed by only one borrower? Tax benefits for a joint home loan should be divided between the co-borrowers based on their repayment share. If both are co-owners, the benefits are typically divided according to their share of the loan repayment. If only one co-borrower is a co-owner, they can claim the principal repayment deduction under Section 80C, while both co-borrowers can claim the interest deduction under Section 24(b).
Q8: What if one co-borrower pays more than their share of the loan? If one co-borrower pays more than their share of the loan repayment, they can claim the proportionate share of the tax benefits for the excess contribution. To avoid any confusion, it’s recommended to have a clear agreement between the co-borrowers regarding the repayment arrangement. This ensures that the tax benefits are accurately divided according to the actual contributions and simplifies the filing process.
Q9: Are there any penalties for errors in claiming joint home loan tax benefits? Yes, errors in claiming joint home loan tax benefits, such as incorrect claims of interest or principal repayment, can lead to penalties, interest, and scrutiny by tax authorities. To avoid these penalties, it’s essential to ensure that all claims are accurate, supported by proper documentation, and proportionate to each co-borrower’s actual share of the loan repayment. Consulting a tax professional or using a platform likeTaxBuddy can help minimize these risks.
Q10: Can tax benefits for a joint home loan be carried forward if not claimed in a particular year? No, the tax benefits for home loan interest and principal repayment must be claimed in the year they are paid. If a taxpayer fails to claim the benefits in a particular year, they cannot carry forward the unclaimed deductions to subsequent years. It’s crucial to claim these deductions during the same financial year to avoid missing out on the tax benefits.
Q11: What should co-borrowers do if they want to change their share of the loan repayment for tax purposes? If co-borrowers wish to change their share of the loan repayment for tax purposes, they should document the change through a formal agreement that outlines the new repayment arrangement. This ensures that both parties are on the same page regarding the division of tax benefits and provides clarity for future tax filings. Keeping this agreement updated will help in claiming the correct deductions in the future.
Q12: Can TaxBuddy assist with claiming joint home loan tax benefits? Yes, TaxBuddy offers expert assistance in filing taxes related to joint home loans, helping both co-borrowers claim the correct tax benefits. The platform ensures that the loan repayment share and property ownership are taken into account, so both co-borrowers can maximize their deductions for interest and principal repayment. TaxBuddy’s AI-driven system makes the process easy and accurate, ensuring compliance with tax regulations and helping to avoid errors in the tax filing.
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