Joint Home Loan Tax Benefits: Maximise Your Family's Tax Savings
A joint home loan is one of the most powerful tax-saving instruments available to Indian families under the old income tax regime. When two or more co-borrowers take a home loan together, each borrower can independently claim tax deductions proportional to their ownership share in the property. This effectively doubles the total deduction limits, as each co-borrower gets their own ceiling under Section 24(b) for interest and Section 80C for principal repayment.
Section 24(b) Interest Deduction
Each co-borrower in a joint home loan can claim a deduction of up to Rs 2 lakh per financial year on the interest component of the home loan, provided the property is self-occupied. This means a couple with a joint home loan can claim up to Rs 4 lakh total in interest deductions. For a let-out property, there is no upper limit on the interest deduction, and each co-borrower can claim their proportionate share of the entire interest paid. The interest deduction under Section 24(b) is available even if the property construction is not complete, subject to a maximum of Rs 2 lakh for self-occupied property. Pre-construction interest can be claimed in five equal instalments starting from the year of completion.
Section 80C Principal Deduction
The principal repayment component of the EMI qualifies for deduction under Section 80C, up to the overall limit of Rs 1.5 lakh per borrower. Each co-borrower can claim their proportional share of the principal repaid, limited to Rs 1.5 lakh each. This means the family can potentially claim Rs 3 lakh in total principal deductions. However, Section 80C has a combined limit that includes EPF, PPF, ELSS, life insurance premiums, and other eligible investments. The stamp duty and registration charges paid at the time of purchase are also eligible under Section 80C in the year of payment.
Optimising the Ownership Split
The key to maximising joint home loan tax benefits lies in the ownership split. The split determines what proportion of interest and principal each borrower can claim. If both borrowers are in the 30% tax slab, a 50-50 split often works best as it maximises the utilisation of both Section 24(b) limits. However, if one borrower is in a higher tax slab, giving them a larger ownership share increases the total tax saved. The ownership ratio must be documented in the co-ownership agreement and ideally reflected in the property registration.
Who Can Be a Co-Borrower?
Most banks accept the following as co-borrowers: spouse, parents, siblings, or adult children. However, to claim tax benefits, the co-borrower must also be a co-owner of the property. Being a co-borrower without being a co-owner does not entitle one to tax deductions. Some banks insist that a co-owner must be a co-borrower, while others allow non-owner co-borrowers (like parents who add income for eligibility but do not want ownership). For tax purposes, only co-borrowers who are also co-owners can claim deductions.
Impact Under the New Tax Regime
It is important to note that under the new income tax regime (default from FY 2024-25), Section 80C deductions are not available, and Section 24(b) deduction for self-occupied property is also not available. For let-out property, a standard deduction of 30% of Net Annual Value and unlimited interest deduction remain available under both regimes. Therefore, joint home loan tax benefits are primarily applicable under the old tax regime. Evaluate which regime is more beneficial for each co-borrower individually, as they can choose different regimes.
A Rs 75 lakh home loan at 8.5% for 20 years generates approximately Rs 6.28 lakh in interest and Rs 1.1 lakh in principal repayment in the first year. With a 50-50 joint loan where both borrowers are in the 30% tax slab, the combined annual tax saving in the first year exceeds Rs 2 lakh. Over the loan tenure, the cumulative tax benefit can reach Rs 25-30 lakh, a substantial reduction in the effective cost of the home loan.