If a piece of property is jointly owned with one's spouse, a question arises that can both husband and wife claim the tax benefit equally and in which case?
It has generally been observed that homebuyers buy a piece of property – usually a house – jointly with their spouse, even if the spouse may not be an earning member of the family. Even banks and housing finance companies encourage buyers to do so, if they are married and are taking a home loan. However, lots of couples get confused while claiming tax benefits on their home loan, even if only one person – either husband or wife – is paying the EMIs. Should they claim the full tax benefit or only half?
“It is very common that people buy properties jointly with one’s spouse or other relative and the name of spouse/relative is added as a matter of convenience or for safety purposes. If the property is jointly owned with one’s spouse, a question arises that can both husband and wife claim the tax benefit equally,” says Gopal Bohra, Partner, N.A Shah Associates LLP.
It may be noted that under the Income Tax Act, 1961, the annual value of a property owned by a taxpayer is chargeable to tax. In case the tax payer owns only one residential house property, the annual value of such a house is considered to be ‘nil’ and any interest paid on money borrowed for acquiring such house is allowed as deduction subject to a maximum of Rs 2 lakh.
Under common law, it is a settled position that ‘owner’ means a person who has valid legal title over the property. However, “for the purpose of income tax, a person who is entitled to receive income from the property in his own right is considered as ‘owner’. Therefore, for the purpose of income tax, when the entire investment is made by one spouse and the name of the other spouse is kept for safety purpose, the income from such property should be taxed in the hands of the spouse who has invested in the property,” says Bohra.
Therefore, if only one spouse pays the full EMI (i.e. computed interest and principal), “the income from such property should be taxed in the hands of that spouse and consequential tax benefits by way of interest payment and repayment of loan principal are also available to that spouse,” informs Bohra.
However, if both the husband and wife (or any other co-owner) are contributing towards the EMIs, then both can claim the tax benefit in the ratio of share in the ownership of the property. But for making this claim and to avail the benefits of joint-ownership in the property, they need to jointly register for the home loan. Having done that, the co-owners of the property can claim deductions individually on the stamp duty & registration charges, interest and principal repayment amounts .
Thus, apart from being the co-owner of a piece of property, one must also be the co-borrower of the home loan and must make payments towards interest and principal obligations for claiming these deductions. “In the case where a loan is taken by parents and child together for a property owned by the parents, and the child later pays off the loan, he/she won’t be eligible for claiming tax benefits as the condition of being a co-owner is not met,” informs a spokesperson of H&R Block.