Co-ownership: A profitable deal

Mini Nair

Planning to buy property? It will make sense to add your spouse as a co-owner. Here are the key benefits of taking this step: 

Eligibility and interest rate

When the loan applicants approach financial institutes for a housing loan, the institution calculates the loan eligibility amount based on the income of the loan applicant. Hence, if both the partners are salaried employees and decide to become joint applicants for the loan, they can apply for a higher loan amount as their eligibility increases with the increase in income. This helps them to opt for a property of higher value or reduce their own contribution.    

For e.g: A male applicant for a home loan in India can avail an amount only up to five times of his net salary. Hence, he would be eligible for a maximum of Rs 50 lakh as a home loan if he draws Rs 10 lakh annually. However, if his wife is working and earns a package of Rs 10 lakh, then the combined income becomes Rs 20 lakh. This pegs the combined loan eligibility amount at Rs 1 crore. 

Moreover, if the male loan applicant has lower employment vintage or a poor CIBIL score, making his wife who is also an earning member with better credentials, as the co-owner of the house, would strengthen their case. The lender might even sanction the loan depending on the income and the CIBIL score of the wife when the husband’s loan application is not worthy to be processed and sanctioned.    

Also, most of the nationalised as well as private banks offer a subsidy in the range of 50-100 bps in the interest rates in the home loan when the first owner is a woman. This reduces their monthly EMI and overall financial burden.

Reduction in stamp duty

The second benefit of adding a spouse as a co-owner when buying a house is that it helps the joint property owners to save on the stamp duty charges and the registration fees for the property that is being bought. Many states have female-friendly policies when it comes to property ownership. A property solely owned by a male member earns a higher registration cost as against that owned by a female. 

For e.g: A woman who applies for property ownership in Delhi has to pay 4 per cent of the property’s market value as its stamp duty, while a man in a similar situation has to pay 6 per cent of the property’s market value. Similarly, a female based out of Rajasthan needs to pay 4 per cent, while a male in the same state has to pay 5 per cent of the property’s market value as its stamp duty.

In rural Haryana, a female property owner has to shell out 4 per cent of the asset’s market value as its stamp duty fees, while a male has to pay 6 per cent fees. Meanwhile, a female in the state’s urban setting has to submit 6 per cent of the property’s market value as its stamp duty as compared to her male counterpart, who has to pay 8 per cent of the immovable asset’s market value. Besides, the property registered in the wife’s name does not fall under the cover when the husband suffers any financial loss and has to repay his debts.  

Succession

Lastly, when a property has a joint ownership, its succession plan becomes a smooth process in the case of any eventuality of either partner. When the immovable asset is registered in the names of both the partners, the succession rules and regulations specify that this asset would go to the living partner after the demise of either of the joint partners. This saves a lot of legal hassles that might lead to lengthy paper work with room for ambiguity in the succession plan.

Tax benefit

Joint ownership of a property by a married couple (if both are salaried) would enable each one of them to claim a maximum amount of Rs 1,50,000 for principal repayment as income tax (IT) reductions under Section 80 (C) in India. The individual income and the share in the property of each owner will decide the tax benefit that each is entitled to. Each of the joint owners can also claim Rs 2,00,000 as interest payment under Section 24(B) of the IT Act. Tax benefits enable both the owners to save a substantial amount of their income under this head. However, the total deduction sought under the IT cap should not exceed the actual payment of principal and interest on the loan amount.

Also, if such a property is given on rent, the tax levied on the rental income also gets divided between the two partners. Hence, the tax burden gets distributed between the joint owners. 

— The writer is CEO & Executive Director, Essel Finance Home Loans Ltd