Buying a home jointly is a common strategy among families, often used to improve loan eligibility and optimise tax benefits. However, a key question frequently arises: Can a co-owner claim tax deductions under Sections 80C and 24(b) even if they are not contributing to the EMI?
Who is a co-owner?
A co-owner is an individual or group of individuals who jointly own an asset with another person or group. In a co-ownership arrangement, each person holds a defined share in the property, based either on their financial contribution or an agreed ownership ratio.
Under the Income Tax Act, two key provisions apply to home loan borrowers:
- Section 80C allows a deduction of up to Rs 1.5 lakh on principal repayment
- Section 24(b) allows a deduction of up to Rs 2 lakh on interest paid (for self-occupied property)
However, eligibility for these benefits is not automatic merely by virtue of being a co-owner.
“Tax benefits are linked to actual payment, not just ownership. If a co-owner isn’t contributing towards the loan repayment, they cannot claim deductions under Section 80C (for principal) or Section 24(b) (for interest),” an tax expert said.
Only those co-owners who actively repay the loan from their own income are eligible for tax deductions.
“Proportionate EMI contribution towards home loan repayment is required, and deductions for principal and interest are allowed accordingly,” said Joint Secretary at BCAS.
Key points co-owners should keep in mind while claiming tax benefits
- The individual must be both a registered co-owner of the property and a co-borrower/co-applicant in the housing loan. A co-borrower (or co-applicant) is someone who applies for a loan along with the primary borrower. Both parties are equally responsible for repaying the loan, and any default or delay can impact the credit scores of both borrowers. Being named only in the title deed or loan document may not be sufficient.
- The claim should be restricted to the actual amount paid by the co-owner towards principal and interest.
- Maintain proper documentation such as bank statements, EMI debit records, and loan repayment certificates.
- Deductions should generally be claimed in proportion to ownership share and repayment contribution. The total deduction claimed by all co-owners must not exceed the total principal and interest paid during the financial year.
- Avoid selling the property within five years from the end of the financial year in which possession is obtained, as this may lead to reversal of deductions claimed under Section 80C.
“Supporting documentation is essential to substantiate tax claims. Key records include the lender’s loan interest certificate, sanction letter, possession or completion certificate, sale deed or allotment letter, and proof of EMI payments. These documents are critical during any scrutiny or assessment by tax authorities,” another tax expert said.
