Understanding the Tax Implications of Jointly Owned Property 

By Lodha

Joint ownership of property is a popular choice for many homeowners, especially in India, where individuals often co-own property with spouses or family members. While real estate investment in jointly owned properties can offer several benefits, it also comes with tax implications that should be understood to avoid unnecessary financial burden. In this blog, we will discuss the tax-related aspects of owning a property under joint ownership, from property tax to the TDS on property sale.

What Is a Jointly Owned Property?

A jointly owned property is a property owned by two or more individuals. These individuals could be family members, business partners, or friends, and each co-owner has equal rights and responsibilities concerning the property. In the case of a married couple, joint ownership simplifies property transfer in the event of one partner’s death and ensures easier access to benefits like property tax exemptions.

Benefits of Joint Ownership of Property

Tax Benefits

Joint ownership can provide significant tax advantages. For example, under Section 80C of the Income Tax Act, 1961, both co-owners of a property can avail themselves of deductions on the principal repayment of home loans up to ₹1.5 lakh. Additionally, each co-owner can claim ₹2 lakh on the interest paid on the home loan, making it a strategic move for married couples or families purchasing property together.

Affordability and Stamp Duty Rebates

Joint ownership also allows for easier financing. Applying for a joint home loan allows both co-owners to pool their incomes, increasing the likelihood of securing a higher loan amount. In some states, there are also stamp duty rebates available for women buyers, which further reduce the overall cost of acquiring property.

Succession Benefits

One significant benefit of jointly owned property is that it simplifies the inheritance process. In the event of a co-owner’s death, the property transfer is easier compared to single ownership, where the transfer of assets can be more complex and time-consuming.

Income Tax Rules on Jointly Owned Properties

In terms of income tax, the co-owners of a jointly owned property are taxed separately. Each co-owner is responsible for declaring their share of the income from the property, whether that income is in the form of rental earnings or capital gains from the sale. According to Section 26 of the Income Tax Act, the share of each co-owner must be clearly defined for tax purposes.

If the shares are specified in the sale deed, each co-owner will report their respective income independently. This means that if the rental income is ₹1 lakh per year and the ownership is divided equally, each co-owner will report ₹50,000 as their income. If no clear share is mentioned, then the entire rental income may be taxed as an association of persons (AOP) or a body of individuals (BOI).

Issues Encountered When Ascertaining Share in Jointly Owned Properties

In some cases, determining the market value of property and each co-owner’s share can be challenging. This is especially common when the contributions of the co-owners towards the property’s purchase price are unequal. If one co-owner contributed more towards the purchase price or ongoing maintenance, this needs to be properly documented to avoid disputes during tax assessments.

Moreover, real estate companies in India often encounter difficulties in determining ownership stakes, particularly in cases where the ownership structure is not clearly defined. This can complicate the tax filing process for jointly owned properties.

Taxation of Rental Income in Jointly Owned Property

For joint ownership of property, rental income is taxed according to the share of each co-owner. For instance, if two individuals jointly own a property and receive ₹1 lakh in rental income, each will declare ₹50,000 on their tax returns, provided their ownership shares are equal. If the shares are different, each will declare income based on the agreed-upon ratio.

It's essential to ensure that the income tax department has clear documentation of the property’s ownership structure to avoid tax issues in the future.

Rules for TDS on Property Sale for Joint Owners

When selling a jointly owned property, TDS on property is applicable. According to Indian tax laws, a TDS (Tax Deducted at Source) of 1% is applicable on the sale value of the property if the sale price exceeds ₹50 lakh. For joint owners, this tax is deducted proportionately from the share of each co-owner. If one co-owner sells their share of the property, they are liable for paying their respective TDS amount on the sale proceeds.

Conclusion

Joint ownership of property offers numerous benefits, from tax advantages to easier succession planning. However, understanding the taxation rules, such as how rental income and capital gains are taxed, is essential for ensuring compliance. When it comes to property value and TDS on property, co-owners should ensure that they have clear documentation of ownership shares and contributions to avoid complications during tax filings or property sales.

For first-time homebuyers or those looking for real estate investment opportunities, understanding these aspects of joint ownership can help make informed decisions. Lodha, one of the top real estate companies in India, offers a variety of sustainable homes and sustainable housing projects that allow for easy joint ownership, providing the perfect option for families and investors looking to grow their wealth through real estate.

FAQs

1. What are the tax implications of jointly owned property?
   Each co-owner is taxed individually on their share of income or capital gains from the property.
2. How is rental income from a jointly owned property taxed?
   Rental income is taxed based on the co-owners’ shares in the property. If the ownership is equal, income is split equally.
3. What is the TDS on property sale for joint owners?
   For jointly owned properties, TDS of 1% is deducted from the sale value, split according to the ownership share.
4. Can joint ownership help first-time homebuyers?
   Yes, joint ownership can help first-time homebuyers secure larger loans by combining incomes, making it easier to afford a home.
5. How can Lodha assist with joint ownership?
   Lodha’s sustainable homes and real estate investment options provide clear ownership structures and opportunities for joint ownership, making property acquisition simple and efficient.