In India, buying a home is a dream for millions. It's a common practice for people to purchase property jointly, to share the ownership costs, or to simplify succession. Most people register a house or other property along with their partner, children, siblings, and even business partners.

Besides splitting the costs of purchase, joint ownership of property offers various tax benefits as well. Here, in this guide, we list out the different scenarios of how joint property ownership impacts the income tax of individuals.

  1. Tax Benefits on Joint Home Loan
  2. To avail tax benefits on a joint home loan, you must meet the following conditions:
    • You must be a co-owner of the property
    • You must be a co-borrower of the loan
    • Construction must be complete
    If you meet these conditions, you are eligible for tax benefits under:

    • Deduction on the Interest Paid
      • For a self-occupied house – The owners of the property (who is also a co-borrower) can claim tax deductions up to Rs. 2 lakhs for the interest paid on the home loan. The total interest paid is divided among the co-owners based on their share in the property.
      • For a rented property – If you have rented out the property, each co-owner can claim a deduction if the amount of loss from the property does not exceed two lakhs.

    • Deduction on the Principal
    • – Each co-owner of the property can claim a deduction in income up to a maximum of 1.5 lakhs for repayment of the principal. Note that this is within the overall income tax limit of 1.5 lakhs fixed under Section 80C.

  3. Tax Benefits under Section 54
  4. In the case of selling the property, all co-owners have to pay capital gains tax. As per Section 54 of the ITA, an individual gets tax benefits if he/she invests the amount he made from the sale in another residential house property. The amount invested in the new property is reduced from the capital gains. Thereby reducing the capital gains tax. For jointly-held properties, capital gains are calculated separately for each co-owner based on the ownership share. Each co-owners can individually/jointly invest in a new property to reduce their capital gains tax.

  5. Tax Benefits under Section 54EC
  6. According to Section 54EC of the ITA, individuals can invest the capital gains from selling a house property in specified bonds to enjoy tax deductions. For instance, if an individual invests in bonds of the NHAI or REC, he/she can claim a tax deduction of up to Rs. Fifty lakhs on the capital gains.

    When it comes to joint properties, each co-owner is eligible for tax deductions up to Rs. 50 lakhs under Section 54EC.

Joint Property Ownership offers multiple Tax Benefits

As you can see, you can increase the overall tax benefits when you purchase a property jointly with family or friends. Make sure to define the allocation of shares in the house property clearly, to enjoy these tax-saving benefits.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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