Getting ready to buy your first house can be a daunting task as it requires both time and money. A lot of effort goes into finding a suitable house that fulfills the need of family members. It is one of the most significant decisions of one's life as people use their savings and borrow loans of large amounts to own a house. But one can score a few bonus points and offers if purchased with a proper plan. According to experts, there are multifold benefits to adding your spouse as a co-owner as banks and the government offer various sops for women.
Harsh Jain, co-founder and COO Groww says banks extend home loans at a discounted rate to women borrowers, adding that "this results in lower EMIs and substantial savings in the long-run".
"Kotak Mahindra Bank offers a special discount of 5 bps in the rate of interest for women borrowers (if she is the property owner/co-owner)," Ambuj Chandna, President, Consumer Assets, Kotak Mahindra Bank says.
Saurabh Garg, co-founder and CBO of NoBroker.com says that "Lenders believe women to be more reliable as borrowers, and encourage them to buy or invest in real estate property".
Apart from the home loan, other significant expenses that a buyer has to bear while buying a house are stamp duty and a registration fee of property papers in the buyer's name. Women buyers in India get a discount on stamp duty for buyers registering properties. Garg told BusinessToday.In that in Delhi, the stamp duty rate is 6 per cent for men, while 4 per cent for women. States like Punjab, Haryana, Uttarakhand, and Rajasthan, offer relaxations in stamp duty for women buyers up to 1 to 2 per cent, he added.
In fact, if a husband incurs business debt or loss, the house that is registered in wife's name cannot be claimed by the bank to cover the loss, Garg says.
However, in terms of tax benefits, there are not any exclusive schemes for women. Any individual can claim up to Rs 2 lakh as a tax deduction for interest paid on a home loan. In respect of principal repayment, an individual can claim a deduction up to Rs 1.5 lakh on a self occupied property.
An additional interest deduction up to Rs 1.5 lakh can be availed in case of the purchase of a house under an affordable housing project (PMAY). However, to take advantage of this benefit, an individual should not own any other property at the day of the sanctioning of loan, and the stamp value of the property should not exceed Rs 45 lakh. Also, the loan amount must be sanctioned between April 1, 2019, and March 31, 2021, by a lender.
Overall, the maximum tax deduction is available up to Rs 5 lakh in a financial year on a self-occupied property.
While there have been many benefits of registering a property in the wife's name, there is a flip side attached to it. According to Garg, in case of a divorce, the property will be divided as per the share of the wife as mentioned in the sale deed, this will happen irrespective of her contribution towards purchase or repayment.
Further, he stated that the income earned directly or indirectly by the wife from assets transferred or gifted to her will be combined with the income of the husband. Therefore, if the house is bought in the wife's name but she does not contribute monetarily to the purchase, the rental income from that property will be treated as the husband's income and taxed at the applicable rate.
BENEFITS OF JOINT OWNERSHIP
Basically, there are three major advantages of joint ownership, which include better home loan eligibility, double tax benefits, and easy succession of the property.
a) Tax benefits in joint-ownership: Groww co-founder Jain says that if both husband and wife have independent sources of income, then joint ownership allows the couple to avail tax benefits in both names.
But to avail tax benefits in the joint home loan, both husband and wife should be co-borrower as well as co-owner.
Each of the owners can claim Rs 2 lakh in their tax return. The total interest is allocated between them based on their share of ownership. If no percentage share is specified, the interest portion of the EMI is split equally and each of them can claim a maximum of up to Rs 2 lakh in their return.
Each of the co-owner and co-borrower can claim deduction towards the principal component of the EMI under section 80C. The maximum deduction allowed under section 80C is Rs 1.5 lakh.
According to Archit Gupta, founder and CEO of ClearTax, "A housewife is also entitled to claim for deduction on home loan as long as she is paying the EMI from her own funds. She should be the owner or co-owner of the house and also borrower of home loan".
b) Bank loan benefits: Usually, lending institutions give loans after determining the annual income of the borrower. Typically, loan eligibility is around five times the annual salary of the borrower.
In the case of joint applicants, the incomes of all the borrowers are taken into consideration to determine the loan eligibility and can enhance the loan amount. For instance, if someone's yearly income is about Rs 18 lakh, they may get a loan of up to Rs 90 lakh. If the spouse earns Rs 10 lakh a year, both can jointly borrow up to Rs 1.4 crore. Chandna says, currently, Kotak Bank's home loan rates start at 7.1 per cent but in case of joint-ownership, the bank offers a special discount of 5 bps provided the woman is a property owner/co-owner, Chandna adds.
c) Succession of ownership: In the case of single ownership, the transfer of property can be lengthy and time-consuming. However, in the case of joint-ownership, the paperwork gets easier without much confusion to select the new successor of the property.