It is an ambition to everyone having own house. Some people utilizes their savings while others get loan from banks to achieve this. If you are a salaried employee, it's always advisable to get a home loan from a reputable bank preferably from nationalized bank. Why people mostly depend on bank loans to build a house? Reduction on income tax is one of the main advantages of constructing house by taking home loan. If both husband and wife are salaried individuals, they will inquire about the chances to incorporate the spouse as co-applicant.
Then the question arises whether both the applicants get the benefit of tax reduction. However, reduction on the interest of home loan is based on the ownership of the house and the interest liability every year.
Tax Reduction Applicable for Both Husband and Wife
If the house is owned by both husband and wife, they both will get tax reduction subject to the ownership share.
For example if the ownership is shared as 60% and 40% for husband and wife respectively, the interest rate of the home loan will be bifurcated accordingly. And actual loan amount will be determined taking into consideration such factors as applicant’s income and repaying capacity, age, assets and liabilities and cost of the proposed house.
The construction of the house or the modification proposed by the borrower in the existing house or flat should be strictly according to the plan approved by the Panchayat / Town Planning and Development authorities. Any modification needed in an already approved plan, can be undertaken only after obtaining written sanction from the appropriate authority.
Also the details regarding the ownership cannot be changed frequently. So no modification could be made on the rate of reduction, as the reduced tax benefit is based on the ownership of the house.
Ownership of Property and House
Husband and wife can jointly build house in the property owned by wife as per rules. The special case of a house owned by one and the property owned by the other is also recognized by law.
But clear-cut documents are needed in such an incident. According to Article 80 C, ownership is not the only criteria for the repayment of the loan. The benefit of the tax reduction will get only for the one who repaid the capital from their income. The two can get a maximum of tax reduction up to one Lakh from the whole income, on the amount repaid towards the loan capital, including the other reductions allowed in Article 80 C.
Yearly, up to Rs. 1.5 Lakhs of tax reduction is allowed to those who take home loan to build or buy a house or flat for their own dwelling, following certain conditions. If the loan is availed before 1999 April 1st, the reduction is only up to Rs. 30,000/- and no reduction will be given for penalty interest.
Tax reduction for the interest rate can be claimed only from the financial year on which the work is completed. The reduction on the interest rate till the work ends could be claimed as five equal installments along with the respective year’s interest from the financial year of work completion, within certain limits.
The applicant must buy the house / flat or complete the building works, within three financial years, excluding the financial year on which the loan is availed. Else, they will get tax reduction only up to Rs. 30,000/-. The amount of the loan shall be utilized strictly for the purpose detailed in the application.
If the home loan is used for other purposes, no reduction would be granted. But if another loan is taken to close an existing home loan, the interest of the new loan will be reduced according to the former loan.