Benefits for applying joint home loan

Recently the boom of buying a new home is increased due to the reduction of home loan interest rates and some reducing property rates. To take the advantage of this reduced interest rates and many lucrative offers from banking and housing financial companies many working couples are opting to buy new home. Buying a new home is itself meaning tightening the budgets and cost cutting on several means to cop up the payment of EMI. But rather than opting for individual it is wise to choose a joint home loan. There are many advantages of choosing a joint home loan for a working couple. Let us discuss this in details. 

The biggest advantage of applying a joint home loan is you will increase your eligibility by adding your spouse’s income to get better amount home loan. If you apply as a single applicant then only yours income will be considered while sanctioning the home loan amount but with a joint home loan your spouses income will also added and you will get higher home loan amount sanctioned. 

When you apply jointly you both will be eligible for getting tax rebate for Interest repayment under Section 24 and Principle repayment under Section 80C. As per current tax structure tax deductions are capped at 1 L for the principal repaid and 1.5 L for the interest repaid. Another advantage of jointly taking a home loan is that all the borrowers can simultaneously avail this income tax rebate, thus maximizing the tax benefits on the home loan. 

Bank generally sanctions loan amount that is 40- 50% of the monthly income of the applicant. This is a safe lending policy all banks have to adopt. This is to ensure that the applicant’s monthly budget expenses will not get affected due to the EMI. So if an individual applies for home loan jointly then he will be benefited in terms of higher sanction of home loan amount because your spouse/parents income would be then added to your income and hence increasing the loan amount. 

Let us understand the above with the concrete example as below. 

Husband and Wife have gross annual income of Rs.6L and Rs.4L respectively. So their combined income would be Rs. 10L. Let's say Husband applies for a home loan of Rs. 20L, which result into an EMI of about Rs.20, 000, which is 40% of his monthly income. If he combines his income with his wife, then he will get some more additional amount sanctioned apart from his eligible loan amount. The tax benefits for loan repayments will be split in the ratio of the share in the home loan. 

Lets say Husband and Wife both are applying for a home loan for a house they purchased worth Rs. 25L, with their savings they able to manage to pay a down payment of Rs.5L so they are now in need of Rs. 20L loan. As we discussed above both Husband and Wife are eligible to take the advantage of Section 24 and related Sections 26 and 23 for a tax rebate on interest repaid, which amounts to a total of Rs.3 L deduction for every financial year for the duration of the home loan for a self-occupied property. Similarly for Principle repayment also they are eligible for a tax rebate of Rs.1 L from their respective individual shares of the principal component for every financial year for the duration of the home loan for a self-occupied property. 

Current tax slabs: 

Tax Slab up to Rs. 1,50,000 
Up to Rs. 1,80,000 (for women) 
Up to Rs. 2,25,000 (for residents, 65 years or above) Nil 

Rs. 1,50,000 - Rs. 3,00,000 10% 

Rs. 3,00,001 - Rs. 5,00,000 20% 

Rs. 5,00,001 - Rs. 10,00,000 30% 

Above Rs. 10,00,001 - 30% + 10% surcharge on tax 

Also, an education cess of 3% is charged on the entire tax amount including surcharge. 

Let us build our example with the following figures: 

Loan amount = 20 L, 
Loan tenure = 20 yrs, 
Interest rate =10% Year 1 - EMI - Rs.19,300 ; 
Interest = Rs.198,510 ; Principal = Rs.33,905 

Let us consider 3 different scenarios: 

Scenario 1 – Tax paid by Husband & Wife if they take an individual home loan? 

Scenario 2 – Tax paid by Husband & Wife if they do not take a home loan or makes any other investment? 

Scenario 3 – Tax saved by Husband & Wife if they take a joint home loan with the split between Husband and Wife to the ratio of 70% and 30% respectively during the first year of the home loan. 

In the attached sheet below you can see the analysis how much tax is saved. 

So if we conclude on what we analysed here is that it is good if the person with higher salary make the higher contribution of the repayment of home loan and hence the better tax management achieved. Regular household expenses can be handled by the other earning member of the family who in turn will contribute lesser in EMI. This would help to optimize the benefits from the tax exemption on principal and interest repaid. 

But, with the introduction of Direct Tax Code structure this analysis may not hold good and also there could be changes in the gross income as well, not to mention changes in the total principal and interest repaid in every New Year of the home loan. In this respect, the interest repaid will become considerably lesser and the principal repaid will become higher during the latter years of the loan. For tax purposes, it is best to procure a home sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership. 

So finally it can be concluded that loan eligibility and maximizing the tax rebate will be always high if you are taking a joint home loan. 



Thanks for reading my Blog. 

With Regards, 
Prashant Sultania