“Sometimes the only way to carry a burden is to share it”, they say. Well, it has proven to be beneficial when buying property together. To exhaust all the benefits of co-ownership in property, it is important to make an informed decision and Indians today are leaving no stone unturned. There are numerous financial gains of having a joint-ownership. Saving on tax payments is one of the biggest.
The income tax department, under section 26, says that where property is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not be assessed as an AOP (Association Of Persons) but as individual persons and share of such persons in the income from house property shall be computed in accordance with the provisions of section 22 to 25 of the Income Tax Act, 1961.
It goes without saying that having joint ownership in the property will grab more benefits than single ownership.
Co-owners are the persons who have signed property agreement jointly. They must have their names in the property papers as owners of the property. They should have also contributed towards the purchase of the said property. Co-owner maybe a spouse, children, parents or even the sibling.
A co-owner must also be a co-borrower or a co-applicant of the loan. His/her name should appear in the loan agreement. Owners who are not co-borrowers and do not pay the EMI would be ineligible for the tax benefits. Even if the co-owner is a co-borrower of the loan but does not contribute to the EMI payments, he/she will be devoid of tax benefits.
Following are the types of ownership:
Apart from the tax deductions, there are other advantages and disadvantages too of joint-ownership.
Following are the tax benefits of co-ownership in property:
Most individuals while buying property go for a home loan. It is advisable to jointly register for the home loans to avail the benefits of joint-ownership in the property. If done so, all the co-owners of the property can claim deductions individually on the stamp duty & registration charges, interest and principal repayment amounts.
The co-owner must also be a co-applicant/co-borrower of the loan. In this case, they can claim a deduction of Rs 2 lakhs, u/s 24(b), individually for the interest paid on loan. The share of interest paid by each partner will be calculated according to his/her share towards the purchase of the property. The combined deduction availed by all the co-owners should not exceed the total interest obligation for the year. A deduction on principal payments of the loan, including the stamp duty and registration charges, is also available to each co-owner u/s 80C within the overall limit of Rs 150000. These deductions should be claimed in the ratio of share in the ownership of the property.
The income tax department has reintroduced this section to help the lower income groups to take a home loan. Under section 80EE deduction of up to Rs 50000 can be claimed by first time home buyers either singly or jointly. However, its available only to individual taxpayers and to HUFs, AOPs, etc. This deduction is available over and above the benefits of section 80C and section 24(B). for claiming this deduction, one needs to satisfy below conditions:
Deduction u/s 24 of 30% which is calculated on the rent received to arrive at annual value is also available to joint owners of the property. The rental income received is to be apportioned in the ratio of ownership and deduction is calculated accordingly.
On the sale of jointly owned property, all the co-owners must declare their capital gains from such sale. The sale consideration of the property is apportioned among the co-owners based on their share of ownership. If the capital gain from the sale of the house is invested in another purchase or construction of another house, the exemption is allowed u/s 54. If the capital gains arising from the sale of property are invested in specified bonds, each co-owner is entitled to claim deduction under section 54EC up to Rs 50 Lakh.
Deductions u/s 54F is also available for joint owners limiting the purchase only to one residential house property. For this section, the condition of not owning more than one house property must be considered individually for each co-owner.
Vilas and his father bought house property together on loan. They have a share of 50:50 in the ownership. Have paid interest of rupees 5 lakhs towards it. Thus, they are both to pay 2.5 lakhs as their interest contribution. This principal amount to be paid is rupees 50 lakhs. Here, both Vilas and his father can claim a deduction of rupees 2 lakhs each for interest obligation and rupees 1.5 lakhs as a part of 80C deduction on the principal amount. Now if the son and father were buying a house for the first time, they will also be eligible for claiming section 80EE deductions of rupees 50,000 each.
Thus, as a family, much tax benefits can be enjoyed through co-ownership in the property.
There are numerous benefits to having a co-ownership in the property. To avail all the tax benefits, one must meet the eligibility conditions and understand all the tax provisions given by the IT Department. Being a joint-owner alone isn’t enough, one must also be a co-applicant of the loan.
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