Buying a house is an important decision for an individual and often requires a huge investment. Therefore, it's crucial to weigh all options that can provide financial benefits to a person thinking about buying a property. If the individual is married, he must decide whether to buy the property in his own name or in co-ownership with his partner.
Here are some things to remember if you are married and considering buying a property.
Legal Ownership and Rights
When you purchase a property with your spouse as co-owner, you must decide how to own it legally. In India, there are two options: joint tenancy and tenancy in common. In a joint tenancy, both parties have equal rights and ownership of the property. If one partner passes away, the other will automatically inherit the entire property. In contrast, tenancy in common allows each co-owner to own a specific percentage of the property. If one owner passes away, their share will go to their heirs, and the other co-owner will retain their ownership percentage.
Stamp Duty Benefits
When purchasing a house, stamp duty must be paid to the state government when a seller(s) registers a sale deed to transfer an immovable property (house) in favour of a buyer(s). Several states have reduced stamp duty rates for women as part of their social initiatives.
Therefore, buying a property in co-ownership with your partner would lead to huge savings in stamp duty.
Usually, prospective buyers require additional funds to buy a property, for which they approach banks/ financial institutions for availing loans. If a man makes a joint application with his working partner, there may be a significant increase in loan eligibility because the incomes of all the borrowers are taken into account. Thus, banks/financial institutions will consider both the partner's and husband's income when determining their eligibility for the loan facility. In contrast, an individual's net income determines his loan eligibility.
Interest Rate Benefits
Women are preferred applicants for lending institutions. Women borrowers/co-borrowers have a better chance of loan approval as data shows that loan defaults among women borrowers are much lower than among male borrowers.
Also, several banks/ financial institutions offer women borrowers attractive terms, schemes, and lower interest rates for a home loan. Therefore, if a husband and partner obtain a home loan for a property in co-ownership, it would impact the EMIs and lead to significant savings in the amount repayable to the lender bank.
Under the Income Tax Act 1961, home loan borrowers are eligible for tax benefits on both principal repayment and interest payment. Under Section 80C, each joint owner can claim a deduction of up to ₹1,50,000 for principal repayment as well as on registration and stamp duty charges.
Furthermore, under Section 24, sub-section (b), they can claim a deduction for housing loan interest from house property income of up to ₹200,000.
The provisions of the IT Act state that the income earned directly or indirectly by the partner from assets transferred to her will be combined with the husband's income. Thus, if the husband buys a house in his partner's name, with no monetary contribution from her, the rental income from this property may be treated as the husband's income and taxed at the applicable rate.
However, if the partner works and has a separate income, and the property is purchased with an equal monetary contribution from both husband and partner, there may be tax benefits if the property is rented out.
In such a case, the spouses can split the rental income equally. This may result in a lower tax slab to them according to the provisions of the Act.
Overall, buying a property with your partner as a co-owner can have several implications. Women benefit more from stamp duty. Joint ownership also improves loan eligibility because the combined income of both spouses is considered when applying for a housing loan.
However, it's also important to consider the potential tax implications if the partner has no independent income, as the partner's income may be combined with the husband's income. Another important thing to remember is that problems may arise if the marital relationship turns sour later. In such an event, the partner will be entitled to absolute ownership of her undivided share of the property purchased jointly. Also, at that point, prior consent of the other would be required to sell the co-owned property. Therefore, it's critical to weigh the benefits and drawbacks of co-owning a property with your spouse.
PropertyAngel is a leading O2O (online-to-offline) second landlord platform. We are a Bangalore-based property management company offering professional property management for individual apartments, houses, and villas. Contact us at (91-80-47095974) or (91-7406484455) if you need guidance on how to invest in the right property in Bangalore.
Leave a Reply.