Alot of people buy their house in single name instead of joint names due to sheer ignorance of the various implications of holding the property in joint names. Let us discuss the implications of holding the house in joint names.
Who can join you as joint owner?
Before understanding the implications of buying property in joint names, first let us understand who can be a joint holder of the property. There is no law governing as to who can be added as joint owner, while buying a property. The joint holder can be any of your close relatives like spouse, parents, children, brother, sister or it can even be your business
partner. Even two friends can also buy property in joint names. For making any one as a joint holder in the purchase agreement, it is not necessary that the joint holder should contribute for purchase of the property. One can be made a joint holder of a property even without contributing even in case you are fully funding the purchase of the property, it still makes sense for you to add your close relatives like spouse and children as your joint owner. If you are married. You can add your parents or siblings in case you are a bachelor. Likewise, there is no restriction on the number of people who can join in the property as joint owner.
Taking a home loan
While giving a home loan, the lenders insist all the joint owners to join in the home loan application as co borrowers. The lenders favourably consider your home loan application when the co borrower is your close relative like spouse, parent or children. Majority of the lenders do not entertain loan applications with co borrower being other than specified close relatives. Since the joint owner has to join you as a co borrower, so it has huge implication as to who is joint owner of the property. This is so because you may not get a home loan if the joint owner is a friend, partner or even in most of the cases brother or sister.
Smooth Succession of the property
Since most of the residential property are now-a-days purchased as flat in housing societies, it is better to buy the house in joint names because in case anything happens to one holder, the society generally transfers the flat in the name of the remaining joint holder without insisting for probate or any an NOC from the other legal heirs. Though there is provision for submission of nomination papers with the society, but for transferring the flats to the nominee is more difficult than to the joint owner.
Income tax a and other benefits
In addition to the benefit of smooth succession of your house, buying a house in joint name helps you in better tax planning. As tax benefits whether for principal repayment of home loan under Section 80 C or for interest on home loan under Section 24B can only be claimed by a person who is either an owner or a joint owner, the benefits of any home loan can’t be claimed by you unless you are an owner of the property even if the loan is serviced by you. It is not possible to buy a decent house, especially in cities, without a minimum home loan of Rs. 50 lakhs. The interest on such loan would be around Rs 4.13 lakhs in a year at an interest rate of 8.25 per cent. In case, the house property is used for self residence and is owned and being serviced by you only, you will be able to claim only Rs 2 lakhs and the tax benefit for balance of Rs 2.13 lakhs would be lost. However, in case the same property is purchased in joint names and the loan is equally serviced by you and the joint holder, both of you can claim the tax benefit in respect of the interest outgo of Rs 2 lakhs each.
The same is the case with respect to tax benefits for repayment of principal home loan amount under Section 80C. If the property is jointly owned and the home loan is equally serviced both of you will be able to claim this benefit for Rs 1.50 lakh each presuming you do not have any other investment or expenditure qualifying for Section 80C.
In some of the cases, the stamp duty payable is lower in case the first owner is a female. Likewise if the woman is the first applicant for the home loan, the lenders give some concession in the interest rates. So from the above discussion it becomes amply clear that buying of a house in joint names makes sense from smooth succession as well as taxation point of view. However, you should also take into account the long term implication of joining someone as joint owner to the property.
The author is a tax and investment expert and can be reached on email@example.com