Author : Mr. Sunil Tyagi, Managing Partner at ZEUS Law
Published in https://www.moneycontrol.com
Buying an immovable property is a very important decision for an individual and often requires significant investment and therefore, it is essential to explore and weigh all options that can extend financial benefit to a person who is contemplating to buy a property. If the individual is married then one of the most important points to consider while making such a decision is whether to buy the property in his own individual name or to acquire the property in co-ownership with his wife.
This article is focussed on highlighting the key considerations that need to be borne in mind by a married man before deciding whether to buy property individually or jointly with his wife as a co-owner.
- Deciding the Share of Co-Owners
The most important point to consider at the time of buying a property with your wife as a co-owner is to decide the share in which the ownership of the property would be held between a husband and his wife. If the registered sale deed of the property does not mention a definite and ascertainable share of husband and wife respectively, being the two co-owners of the said property, then the ownership is generally considered to be on a 50: 50 basis which resultantly will have tax implications on both the spouses in proportion to the share held by each of them.
- Stamp Duty Benefits
On purchase of an immovable property, stamp duty at applicable rate is required to be paid to the state government at the time of the registration of the sale deed of the subject property by the seller(s) in favour of the buyer(s). As a part of their social initiatives, several states in India prescribe reduced rate of stamp duty for females.
Therefore, buying a property in co-ownership with your wife would lead to huge savings in the payment of stamp duty.
- Increase in Loan Eligibility
Often additional funds are required by prospective buyers to purchase a property for which they approach banks/ financial institutions for availing home loan facility. In case, a man makes a joint application with his wife who is also earning for availing such loan facility for purchasing a property then there may be a significant increase in loan eligibility because an individual’s loan eligibility is determined by their net income, and in the case of joint applicants, the incomes of all the borrowers are taken into account.
Thus, if both spouses are earning then the income of both the wife and the husband will be jointly considered by banks/ financial institutions while determining their eligibility for the loan facility. Consequently, they may be eligible for a higher loan amount juxtapose to a situation where the man applies for such loan facility individually or jointly with his wife who is a homemaker.
- Interest Rate Benefits on Home Loan
Women are favoured applicants for lending institutions and there are better chances of loan approval for woman borrower/ co-borrower as the data shows that loan default among women borrower is much lower than male borrowers. In view of the same, several banks/ financial institutions offer attractive terms, schemes and lower interest rates for a home loan to women borrowers. Therefore, if home loan is availed for a property in co-ownership between a husband and his wife, it would have an impact on the EMI’s and lead to significant savings in the amount repayable to the lender bank in respect of such home loan.
- Tax Implications
Under the provisions of the Income Tax Act, 1961 (“Act”), the borrowers of a home loan 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 Rs. 1,50,000/- (Rupees One Lakh and Fifty Thousand only) for principal repayment as well as on registration and stamp duty charges. Furthermore, according to sub-section (b) of section 24 they can also apply for a deduction on housing loan interest from house property income, up to Rs 2,00,000/- (Rupees Two Lakh only).
As per the provisions of the Act, the income earned directly or indirectly by the wife from assets transferred to her will be clubbed with the income of the husband. Therefore, if husband buys a house in his wife’s name, but she does not make any monetary contribution for such purchase, the rental income from this property may be treated as husband’s income and taxed at the applicable rate.
However, in case where wife is working and has an independent income and if the property is purchased with equal monetary contribution by husband and wife then there might be tax benefits if such property is let out. In such an event, the rental income can be shared by the spouses equally which may result in applicability of a lower tax slab to them in accordance to the provisions of the Act.
To sum up, buying a property with your wife as a co-owner can have several implications that need to be analysed before entering into any purchase transaction. The stamp duty benefits for female, increase in loan eligibility due to the combined income of both spouses and taxation benefits when the wife has independent income are some of the advantages of co-owning property with your spouse. However, it is also important to consider the potential tax implications if the wife has no independent income, as the income earned by the wife may be clubbed with the income of the husband. Another important aspect to be mindful of is that problems may arise if the marital relationship gets sour as the wife will be entitled to absolute ownership of her undivided share of the property purchased jointly. It also needs to be kept in mind that in case of joint ownership prior consent of the other would be required for the sale of the co- property. Therefore, it is crucial to weigh the pros and cons of co-owning property with your spouse.