I have bought a residential house in joint ownership with my brother and have taken home loan from a bank. The bank manager says that EMI will have to be paid through ECS from a bank account itself. Only one interest and principal repayment certificate will also be issued in joint name. I will transfer part of my home loan EMI to my brother’s bank account, from there the entire EMI will be paid to the bank through ECS. In such a situation, can both of us, joint proprietors, avail benefits under Income Tax laws and in what proportion?
Answer: What you are planning to do is completely correct and legal. This is how joint home loans are generally serviced. The bank will register an ECS for joint home loan, even if there is more than one joint borrower of the home loan. In such a situation, the borrowers have two options. Either you open a joint bank account just for servicing home Loan And transfer your share in the home loan. Alternatively, a borrower can pay the EMI from his bank account and other co-borrowers can transfer their respective shares in the EMI to that bank account. So since you will transfer your share of EMI to your brother’s bank account, you will be able to claim tax benefits without any problem.
However, the lender issues a single certificate mentioning the names of all the co-borrowers for the payment of interest and repayment of the principal amount of the joint home loan as the bank will not know the respective shares of the co-borrowers in the home loan. Even if the bank issues a single certificate for joint home loan EMIs, the co-borrowers can claim tax benefits in respect of the home loan in proportion to their respective shares in the home loan, provided the co-borrowers also Co-owner of the property.
Please note that it is not necessary that the respective shares of the joint owners in the property and the home loan are equal. This can vary as one joint owner can finance his share in the property through his own sources while another joint owner funds it through a home loan and pays off the home loan alone. In such a case, he alone would be able to claim tax benefit for the home loan as he would be paying the home loan alone. Please note that the respective share of joint owners in the property and home loan gets crystallized in the beginning and cannot be changed later.
Balwant Jain is a tax and investment specialist and can be contacted on Twitter at jainbalwant@gmail.com and @jainbalwant.
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