- Date : 23/05/2021
- Read: 4 mins
Income tax implications on jointly owned properties cover income from the sale, rent, as well as TDS applicability.
The question of taxation on a property arises when the owner earns income or makes capital gains from it. The Income Tax Act imposes a tax on an individual as well as on a company, partnership, Hindu Undivided Family (HUF), etc. A property would accordingly be taxed based on the ownership, whether it is owned by an individual or a group.
However, as per joint property rules, income tax is levied in the hands of the respective co-owners individually, and not as a group. However, before this can be done, the share of joint ownership of property has to be ascertained.
Ascertained share of co-ownership of a property
A mere mention of a name in the property buying agreement doesn’t attract income tax. Income tax on the property is calculated based on the contribution of each co-owner towards the purchase consideration of the property. Such contribution can be made while making the down payment or subsequent payments. The ratio of sharing of the home loan, if any, indicates this ownership share.
In the case of inherited and jointly owned property, the ownership ratio mentioned in the will of the predecessor will be considered. In absence of a will, the law of succession as applicable for the respective religion will be considered for the ownership calculation. Relinquishment of inheritance will accordingly change interest in the property. In case of death of a co-owner, the inheritor gets the share, not the surviving co-owner(s).
Is tax planning getting too taxing for you? Hack your way out with insightful reads here.
Rental income
If you have more than one jointly owned property, all the others apart from the residential one would be liable for tax. If the property(s) is not let out, the tax would be calculated as per the ownership ratio on the notional rent. If let out, the rent so received will be taxed. A standard deduction of 30% of the rent, notional or actual, will be available to the owners. Besides, home loan interest and renovation or repair costs are also deductible from the rental income.
Profit on sale
In the case of sale of property, the cost of acquisition and the total sale consideration will be proportionately divided among the co-owners. Each co-owner would be eligible for Section 54EC exemptions on investment of the indexed capital gains for up to Rs 50 lakh. Section 54F allows exemption from capital gains tax if the proceeds are invested in a residential house within the stipulated period, provided the taxpayer doesn’t have any other residential property. Both 54EC and 54F are available to each of the co-owners separately.
Related: An expert guide on how the price of a house is determined
Capital gains calculation
Let us understand the capital gains calculation with the following example, assuming that husband and wife Mr A and Mrs A are co-owners:
| Particulars | Mr. A | Mrs. A | Total |
| Ratio of ownership | 50% | 50% | 100% |
| Sales consideration in January 2003 (in NR) | 5,00,000 | 5,00,000 | 10,00,000 |
| Indexed cost of acquisition in January 2019 (1,00,000 x 280/105) | 1,33,333 | 1,33,333 | 2,66,667 |
| Long term capital gains | 3,66,667 | 3,66,667 | 7,33,333 |
TDS on sale
Tax deducted at source (TDS) of 1% is applicable on the sale of immovable property, as per Section 194-IA (2) as deducted tax. However, TDS on sale of property in case of joint owners would be applicable only if the sale consideration of each of the joint owners exceeds Rs 50 lakh. It is only if the sale consideration exceeds in case of the co-owners that TDS on sale of property in case of joint sellers is applicable. This, in a nutshell, is the income tax applicability on co-owned properties. Look at this TomorrowMakers’ home buying guide for India [PART – I].
The question of taxation on a property arises when the owner earns income or makes capital gains from it. The Income Tax Act imposes a tax on an individual as well as on a company, partnership, Hindu Undivided Family (HUF), etc. A property would accordingly be taxed based on the ownership, whether it is owned by an individual or a group.
However, as per joint property rules, income tax is levied in the hands of the respective co-owners individually, and not as a group. However, before this can be done, the share of joint ownership of property has to be ascertained.
Ascertained share of co-ownership of a property
A mere mention of a name in the property buying agreement doesn’t attract income tax. Income tax on the property is calculated based on the contribution of each co-owner towards the purchase consideration of the property. Such contribution can be made while making the down payment or subsequent payments. The ratio of sharing of the home loan, if any, indicates this ownership share.
In the case of inherited and jointly owned property, the ownership ratio mentioned in the will of the predecessor will be considered. In absence of a will, the law of succession as applicable for the respective religion will be considered for the ownership calculation. Relinquishment of inheritance will accordingly change interest in the property. In case of death of a co-owner, the inheritor gets the share, not the surviving co-owner(s).
Is tax planning getting too taxing for you? Hack your way out with insightful reads here.
Rental income
If you have more than one jointly owned property, all the others apart from the residential one would be liable for tax. If the property(s) is not let out, the tax would be calculated as per the ownership ratio on the notional rent. If let out, the rent so received will be taxed. A standard deduction of 30% of the rent, notional or actual, will be available to the owners. Besides, home loan interest and renovation or repair costs are also deductible from the rental income.
Profit on sale
In the case of sale of property, the cost of acquisition and the total sale consideration will be proportionately divided among the co-owners. Each co-owner would be eligible for Section 54EC exemptions on investment of the indexed capital gains for up to Rs 50 lakh. Section 54F allows exemption from capital gains tax if the proceeds are invested in a residential house within the stipulated period, provided the taxpayer doesn’t have any other residential property. Both 54EC and 54F are available to each of the co-owners separately.
Related: An expert guide on how the price of a house is determined
Capital gains calculation
Let us understand the capital gains calculation with the following example, assuming that husband and wife Mr A and Mrs A are co-owners:
| Particulars | Mr. A | Mrs. A | Total |
| Ratio of ownership | 50% | 50% | 100% |
| Sales consideration in January 2003 (in NR) | 5,00,000 | 5,00,000 | 10,00,000 |
| Indexed cost of acquisition in January 2019 (1,00,000 x 280/105) | 1,33,333 | 1,33,333 | 2,66,667 |
| Long term capital gains | 3,66,667 | 3,66,667 | 7,33,333 |
TDS on sale
Tax deducted at source (TDS) of 1% is applicable on the sale of immovable property, as per Section 194-IA (2) as deducted tax. However, TDS on sale of property in case of joint owners would be applicable only if the sale consideration of each of the joint owners exceeds Rs 50 lakh. It is only if the sale consideration exceeds in case of the co-owners that TDS on sale of property in case of joint sellers is applicable. This, in a nutshell, is the income tax applicability on co-owned properties. Look at this TomorrowMakers’ home buying guide for India [PART – I].
