Home loan deduction without being co-owner but co-borrower
Prathik
(Querist) 25 July 2023
This query is : Resolved
Hi Team,
In 2017 - My Father paid the amount and got the property(2400 sq ft plot) registered in my Mother’s name alone. My mother is the sole owner as per sale deed. We wanted to build a house on that plot. Since my mother had no source of income, bank made me co-applicant and I along with my mother took home loan. Later on I being co-applicant paid EMIs and claimed home loan interest and even deduction in 80c for home loan principal while filing tax returns. In 2021 - My father expired. In 2022 We took top-up loan jointly in the name of me, my mother and my brother(for taking tax deduction for home loan interest and principal) and constructed 1st floor and it is self occupied. Construction is complete and we have occupied the building same year.
Bank manager told if my mother is not claiming home loan interest and 80c deduction then I being co-applicant can claim. So I claimed and never got any notice/enquiry from Income tax department. I think Income tax will check via cibil if a person is having any home loan or not. That’s why they might have not asked for further clarification.
This year I got to know that only if we are the co-owner then we can take deduction for home loan interest and under 80c for home loan principal.
I want to know how can I add my name and my brother’s name to the co-owners list along with my mother which can be accepted by Income tax of India in case of query.
If we execute via gift deed - we end up paying 3-4% of property value via registration and stamp duty charges. Also in future if we rent out this property. We need to show rental income as well.
If we can make non-registered legal agreement with the help of notary involving my mother, brother and me stating “my mom is not claiming any deduction and we are the legal heirs. So my brother and I wish to claim equal home loan related deductions”. Provide a copy of this agreement to bank and take deduction while filing IT return. If we get any notice - will it stand as a proof. Can income tax officials accept this?
Since the property is mortgaged with the bank. In the Encumbrance Certificate (EC) - if I apply and get for EC till today - we see my name, my mother’s name and my brother’s name under owner and it is pledged with bank. Can it be shown as proof of ownership to income tax officials?
kavksatyanarayana
(Expert) 25 July 2023
You can show it as proof. It is better to consult a CA or CS in the matter for full details about IT.
Prathik
(Querist) 25 July 2023
If I go with registered MoU where my mother is declaring that both of my son’s are financially helping me to repay the loan by paying the EMIs among themselves. As long as I am alive - I will completely claim the rent I.e 100% of rent received and file the IT return for the rental income. Post death of Mother - rental income would be split equally between both sons. My two son’s will claim the deduction for home loan interest and principal equally between them as they are paying for it. Two sons and mother are agreeing to this declaration and have no objection.
Can this create such registered MoU and show it to income tax officials in case of query/notice?
T. Kalaiselvan, Advocate
(Expert) 27 July 2023
The registered MOU or the agreement duly notarised are not the valid title documents to prove that you and your brother are co-owners of the property.
Since the property is on your mother's name she can gift a portion of the property to you and a portion of property in favor of your brother by a registered gift deed so that you both will be considered as joint owners of the property along with your mother.
As the property is under mortgage home loan, your mother cannot execute the gift deed unless the loan amount is discharged because already there is an encumbrance on the property on the name of mortgage loan, hence now tht bank is the owner fo the property till the loan is discharged.
However you may note that :
Deductions per section 24(b) of the Income Tax Act
Each co-borrower can claim this deduction in a joint home loan. This means that both co-borrowers can claim deductions on the interest paid on the loan, up to a maximum limit of Rs. 2 lakh each per year.
Prathik
(Querist) 28 July 2023
PFB link from clear tax website - here they mention we have to owners of the property to claim home loan interest that’s why I am looking for alternate ways how to claim it.
https://cleartax.in/s/deductions-under-section24-income-from-house-property
@T. Kalaiselvan Sir - can you please elaborate how I can still claim home loan interest?
T. Kalaiselvan, Advocate
(Expert) 04 August 2023
The tax deduction under section 24(b) can be claimed by both the borrower and the co-borrower in the ratio of their share in the loan.
It is important to note that the deduction is available only on the interest component of the EMI and not on the principal component. Additionally the property to which loan is taken must be self occupied for the co-borrowers to be eligible for tax deductions. If the property is let out you can claim the actual value without any upper limit.
