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The co-owners of a property can jointly claim tax benefits u/s 80C, 24(b), 54EC and 54F regarding home loans and capital gains on the sale of the property. Besides tax saving, there are several other advantages too which is explained in this guide by H&R Block India.

Tax Benefits for Co-ownership in Property

Last Update Date : June 27, 2018

co-ownership in property

“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.

Who is a Co-owner?

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.

Who is a Co-borrower?

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.

Types of Co-ownership

Following are the types of ownership:

  1. Tenants-in-common – When two or more people hold the title of the property, but their share is not specifically mentioned, it is known as ‘tenants-in-common’. All the co-owners are equal partners, and each one of them may use the entire property. In the event of the death of one co-owner, the interest will not pass to the others but will go the one mentioned in the will of the deceased. He will then become a tenant-in-common with the other survivors.
  2. Joint-tenancy – This type of ownership allows the interest of the deceased co-owner to pass on to the surviving joint-owners.

Advantages and Disadvantages of Joint-Ownership in Property

Apart from the tax deductions, there are other advantages and disadvantages too of joint-ownership.

Advantages

  1. Loan Eligibility – This is a huge advantage regarding the home loan being sanctioned by the bank. If there are more than one applicants for the loan, the bank will consider the combined income of all the applicants to decide the eligibility of repayment, and as a result, the chances of sanctioning the loan will go increase.
  2. Repayment of Loan – More the number of joint-owners, easier is the repayment process as it divides the burden of EMIs among all the partners. It is highly advisable for working married couples to buy properties jointly.
  3. Higher Affordability – The spouses, can jointly apply for the loan. The burden is equally divided between the husband and wife making it easier for the repayment. Also, the tax benefits can be availed by them and will be very beneficial to the family.
  4. Stamp Duty – In some states the stamp duty charges are lower for women by 1-2 %. Hence, they are encouraged to buy property jointly.
  5. Succession – In case of single ownership, succession can be a tedious process. On the contrary in case of joint ownership, if one spouse dies, the property automatically goes to the other.

Disadvantages

  1. Documentation – One of the very few disadvantages is the extensive documentation required for co-ownership. Depending on the number of applicants the process has to be repeated twice or thrice.
  2. Credit Score – As the co-owners have a joint liability of payment towards the loan, if one of the co-owner defaults, this will reflect in the credit history of all the joint-owners.

Tax Benefits of Co-ownership in Property

Following are the tax benefits of co-ownership in property:

Joints Home Loans

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.

Eligibility

  1. Besides being a co-owner of the property, one must also be the co-borrower of the loan and must make payments towards interest and principal obligations for claiming these deductions. In the case where a loan is taken by parents and child together for a property owned by the parents, and the child later pays off the loan, he/she won’t be eligible for claiming tax benefits as the condition of being a co-owner is not met.
  2. Tax benefits on a house property can be claimed from the start of financial in which the construction was completed. If the property was under construction, expenses before the start of the financial year in which possession of the property is received, or construction is completed are claimed in five equal instalments starting the year in which construction is completed.

Section 80EE

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:

  1. Value of this house bought should not exceed Rs 50 lakhs
  2. Loan taken for this house should not exceed Rs 35 lakhs
  3. The loan should be taken from a Financial Institution or a Housing Finance Company
  4. The loan should be sanctioned between 01.04.2016 to 31.03.2017
  5. As on the date of sanction of loan you should not own any other house

Rent Received for Jointly Owned Properties

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.

Capital Gains on the Sale of Jointly Owned Property

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.

Illustration

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.

If you still haven’t filed your Income Tax Return, you are at the right place. File your IT returns with H&R Block to experience effective and hassle-free tax filing. Our tax experts will file your return for you while you sit back and concentrate on your work.

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