Buy House with A Spouse!

TaxBuddy explains the tax benefits of having a spouse as co-owner of a house. The joint ownership of your house with your spouse means shared responsibilities. It also saves money on stamp duty in some states, concessional interest rates to the women by some banks, increased amount of home loan by the bank, and substantial reduction in income tax of the couple.

The home loan bank generally asks you to make your spouse a co-applicant since it makes their recovery work easier in case of default by the main borrower. However, you should make your spouse not only a co-applicant but also the co-owner of the house property with defined rights in the house purchase agreement.

On this issue, TaxBuddy.com explains the tax benefits of buying a house with your spouse.

What are the tax benefits of buying a house?

A person owning a house gets following tax benefits:

Tax Deduction Benefit Monetary Limit () For how many years?
Deduction on home loan interest repayment 2,00,000/- As long as interest is repaid
Deduction on home loan principal repayment 1,50,000/-* As long as the principal is repaid
Extra deduction on interest u/s 80EEA 1,50,000/- Till you exhaust the limit of ₹1,50,000/-
Stamp duty and registration charges 1,50,000/-* In the year when stamp duty is paid
Pre-construction interest 2,00,000/-# Five years from the year of possession in equal annual installments

(*) This deduction is a part of 80C deductions and the combined deductions from all sorts of investments and payments cannot exceed this limit

(#) This deduction is combined with a deduction on account of home loan interest and hence the combined maximum limit of ₹2,00,000/-.
How much tax will be saved after having a spouse as a co-owner?

When a home is bought on loan, you have to repay the loan in EMIs and such annual EMIs may aggregate to more than ₹2,00,000/- but you can claim interest deduction only up to ₹2,00,000/-. The remainder of EMIs stays unclaimed for tax benefits. Similarly, as a family, you might have chosen investment instruments so that you do not repeat them amongst you and your spouse. So, if you have already exhausted your limits of 80C deductions (₹1,50,000/-), you cannot claim deduction on account of repayments of home loan and hence such deduction too remains unclaimed. This logic applies to other deductions too. So, in order to claim tax deductions to their maximum limits, you need to have a co-owner in your spouse. For the purposes of tax deductions, both the co-owners shall be treated as they are independently claiming such deductions.

Illustration

Smt. Mitali bought a house of ₹45 lacs out of which ₹ 40 lacs was financed through home loan and EMI was ₹39,935/- (~40,000). Her taxable income without deductions on a home loan is ₹12,00,000/- and her husband also has an equal amount of taxable income. Now, let’s compare the tax benefits of the house only in her name and in the names of both herself and her husband.

If she buys a house as only herself as the owner of the house, then her taxable income comes to ₹19,70,000/-. Let’s see the situation after her husband is also the co-owner :

Thus, Smt. Mitali can reduce the taxable income of her family from ₹19,70,000/- to ₹16,00,000/- simply because she decided to co-own the house with her husband. That’s a decrease of taxable income from ₹82% of family gross income to 67% of the family gross income.

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