Taxing Times...Co-applicants and tax

This article explains how IT rebate can be availed when a home loan is taken jointly.
Many home loan borrowers are not aware of how interest is worked out when the loan is taken jointly. Let us take an example. A borrower took a home loan of Rs 20 lakhs in his wife's name. When applying for the loan, his wife's salary did not qualify for the Rs 20 lakhs. So the bank suggested that he should include his name for enhancing the family income and thereby the loan eligibility. His wife is the 100 percent owner of the property and only she would be taking the benefits of IT rebate under the Income Tax Act. All the papers related to property are in her name including the share certificates, allotment letter and the possession letter. Even the repayment would be done from her account only. As both husband and wife are the co-applicants, the banks usually send the statement for claiming IT benefits in both the borrowers' names. Now the question is, whether this may create problems for the wife as she would be unable to get 100 percent of the IT benefits. The wife is the owner of the house and for technical reasons the husband is only co-applicant for the loan. The repayment of loan is effected from her account. As such the bank may be requested to send the certificate in her name only, to enable her to claim income tax benefits. Alternatively, the wife can give a declaration to her employer to the fact that she is the owner and the installments have been paid by her only, and the name of her husband was only for securing the housing loan. The employer may grant the benefit on this declaration also. Another issue which is often raised is whether a wife can purchase a house when the husband already has a house in his name, or vice versa. What would happen to the taxability of income? There is no restriction on purchasing a house by a wife in the same city where the husband also owns a house. She can claim deduction of 30 percent of net annual rental value of the property towards repairs etc., and the amount of interest paid on loan under Section 24 while computing income from house property along with rebate on principal repayment. In case the property is not let-out, she can claim deduction of interest up to Rs 1.5 lakhs from net annual value of the property. Related to this, let's say the husband stays in a flat owned by his wife in Delhi. In order to avail of tax sops, he plans to purchase a flat in Bangalore. He intends to avail a loan. The husband does not own any other flat. The question is whether the husband would be eligible for tax benefits with respect to interest and principal components of the EMI from his taxable income. In order to claim the annual value of the property to be nil one has to prove that the owner is using the property for self-occupation. If one can prove that it is being used for his own residence, he can claim its annual value to be nil. If he leases the property, then the rent received, after allowing a deduction, will be taxable under the head 'Income from House Property'. The deductions are a sum equal to 30 percent of the annual value, and where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.

Also an article on Moneycontrol discusses about the benefits of getting marriage on Housing Finance perspective.

Marriage has benefits even when buying a house. Are you planning to buy a house anytime? Then, even if you are Mr. Deep Pocket, it is better to opt for housing finance. Tax breaks are available only on borrowed funds and not on the use of your own moolah. Moreover, in most cases, you will find that the direct cost of borrowing is much lesser than the tax saved especially now with the new Budget offering tax breaks of Rs. 2.5 lakh on combined interest and principal payments.
Like I said, if you are buying a house, it helps if you are married. Real estate can be co-owned. Buy the property with both having an equal share. This way she cannot throw you out of the house (half of it is yours remember). But that’s not my point.
The loan should also be taken equally and the interest and principal payments for the same should be made separately by each from their respective bank account.
If the above is carried out, each is entitled to an interest deduction of up to Rs. 1.5 lakh under Sec. 24 and a principal deduction of Rs. 1 lakh under new Sec. 80C. So totally between the both of you, up to Rs. 5 lakh of income will escape tax! Makes you wonder why can we marry only one?