Deduction of Interest on Housing Loan in case of co ownership

Bombay High-Court: CIT Vs PR Thakkar on 26 MAR 1987 (Equivalent citations: 1988 170 ITR 224 Bom HC) 

IF home loan is taken for the purpose of purchase, construction, repair, renewal or reconstruction, interest there on is allowed on accrual basis under section 24 of Income tax Act, 1961.

As per section 24 of Income tax Act, Maximum amount of Interest permissible in case of self occupied property is Rs.1, 50,000 /- subject to actual Interest paid if the following conditions are satisfied;

1. Home loan is taken on or after 1st April, 1999 for acquiring or constructing a property.

2. Loan taken prior to 1st April, 1999 is eligible for maximum deduction of Interest up to Rs.30000 only.

3. Acquisition/Construction should be completed within three years from the end of financial year in which capital is borrowed.

E.g. loan is borrowed on 2nd July, 2013 hence acquisition or construction should be completed by 31st March, 2017 i.e. three years from 31st March, 2014.

4. Person has to certify that Loan is taken for acquisition or construction of house or to repay principal amount outstanding under previously taken loan for acquisition or construction.

5. However for repairs, renewal or reconstruction maximum deduction of Rs.30000 is allowed and not Rs.150000.

 

Tax Opinion on deduction of Housing Loan Interest u/s 24 of Income Tax Act,1961

If an assessee and his/her spouse is co owner of house property then deduction of Rs.150000 is allowable to both husband and wife on proportionate basis. 

Please note following points in this regards; 

1.  Ceiling of Rs.150000 is set for Self occupied property.

2. Persons should be co owner of property and their names should be mentioned in registered sale deed.

3. Their share of property should mention in sale deed in the absence of any such information ownership deemed to be equal between all co owners.

4. For claiming home loan interest deduction, each co owner must have taken loan jointly.

5. If persons have taken loan from more than one bank but for the same house property then also deduction is allowed.

Apart from Home loan interest deduction, persons can claim deduction U/s 80 C for repayment of principal on home loan within overall limit of Rs.1, 00,000 per person. 

In order to avail the tax benefits through this provision the co borrower of the loan also has to be the co owner of the property.

The share in tax exemption that each of the co borrower gets is in proportion to the share in the home loan availed by the co borrower.

Eg:

Where the husband and wife as co borrowers are paying a total of Rs. 240000 as interest and Rs. 100000 as principal element of the home loan each of them is entitled to a tax exemption of Rs. 120000 each on the interest part subject to a maximum of Rs. 150000 and Rs. 50000 each for the principal element irrespective of their overall tax returns for the year.

In cases where one of the co owner is not earning then the earning partner has to enter into a legal agreement with the former to state that the entire burden of the home loan is being borne by the earning member. This will make the earning member to take full advantage of all tax exemptions available on the home loan.

This agreement can be signed on Rs. 100 stamp paper.