Tax Implication: Provisions under IT Return for Jointed Owned Property

Many a times, people get their purchased property registered onto the name of their parents or a distant relative in order to get save more at the time of filling Income Tax return. In fact, people think that it will be easier to inherit the property after the death of the co-owner but that is not correct in most of the cases. Rather, there are several Income Tax implications for the jointly owned property which you as a proprietor must know. So, here we are listing all the important details related to the same:

Jointed Owned Property tax

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1. Status of Co-Owners Under Tax Paying

Under the multiple categories of the Income tax, the Government has notified each taxpayer as an individual. Although, if two people are co-owners of a property either for buying a residential property or a commercial purpose then they are likely to be addressed as a partnership firm that incorporates Limited Liability Partnership [LLP]. This co-ownership is taxed as the Association of Persons (AOP) or as Body of Individual (BOI).

Under Section 26, the Income tax Act clearly states that the co-owners have to pay their part of taxable amount while owning the building/structure. This share of income can be in terms of rental amount or Capital Gains that totals at the time of selling the same building/structure. If the share of each co-owner is described clearly then he/she will be eligible for tax as an individual and not as a BOI/AOP or partnership.

However, the scenario is different in case of the Hindu Undivided Family [HUF]. The property is owned by HUF within its own limits but it is not considered as a jointly owned property when it comes to paying tax. Therefore, the property is taxed as a separate entity under HUF but is not apportioned amongst the members of the Hindu Undivided Family. 

2. How the Share of Each Joint Owner is Evaluated

The jointly owned property doesn’t mean that both the owners have equal share in the purchase. It means that if a couple has bought a building for example, then it is not necessary for them to own property in equal percentage. The ratio of investment can be 50-50 percent or It can be 70-30 etc. Hence, the tax calculation for the jointly owned property is carried out on the basis of amount invested in the building at the time of purchase. This is so because many people own the property jointly in order to inherit the property without any dispute.

The percentage or the amount shared by each of the co-owner is evaluated by totalling the share of deposit given by each of the person at the time of booking, the homeloan amount sanctioned from the bank to each co-owner jointly apart from assessing the bank statements of both of the joint property owners.  Remember that if all these documents prove that a person has not invested a single rupee in the purchase process then he/she is not considered as an owner of the property especially for the Income tax part inspite of the person’s name written on the property papers.

3. In Case of Inheriting Property

In case the property is inherited under a registered will or by succession then there are different tax implications for it. The tax is calculated on the basis of share the person is liable for according to the ratio mentioned in the registered will of the testator. In case the property is jointly owned then either the ratio of the will else the hierarchy in which the person fall as per the religion will be ascertained for calculation the payable tax amount. Also, the will be assess as some people give up their right under the joint-ownership even after getting some share in the property legally.

4. Tax Calculation of Rent Received on jointly Owned Property

You are not liable to pay tax if you have a residential property which is self-occupied. On the other hand, if you have more than one property as a joint-owner then one of these immovable assets has to be used as self-occupied whereas the second property is assumed as rented and you being a joint-owner have to pay the notional rent for the same property. The amount of notional rent depends upon your share in the property.

This was an assumed case, now you must know about the tax calculation of the property that is actually rented. In case of hiring a tenant, the rent acknowledged is essential to be apportioned in the ownership ratio as determined. The rent so assigned is treated as the property’s yearly cost, from which, a regular standard deduction of 30% of the rent, either actually received or notionally computed, is made, to attain at the taxable amount of the rent. In addition to the standard deduction, you can also deduct amount of interest paid on money that was borrowed for the purpose of buying, constructing or renovating of the building which is later counted as taxable income under the section ‘Income from house property’.

5. Tax Calculation of Profit after Sale of the jointly Owned Property

In case the jointly-owned property is sold then each co-owner of the property has to provide capital gain according to his/her share in the property. It may be noted that the apportionment shall be made at the ‘sale consideration’ and ‘cost of acquisition’ level and not at the ‘net taxable capital gains’ level. The co-owner of the property is entitled to exemption under Section 54EC, by investing the indexed capital gains up to Rs 50 lakhs in case of the long-term capital gains on the sale of the jointly owned property irrespective of whether it is a commercial or residential one. Hence, the investment in some bonds under Section 54EC, are applicable for each co-owner and not for the entire property.

Under Section 54F, owning of more than one property is not approved for claiming exemption from long-term capital gains as these are considered for each of the co-owners separately and not for all co-owners collectively.