The Government has always promoted investments in the real estate sector. Thus, it always aims to provide various tax benefits to individuals in India for buying a house property under the ‘Housing for All’ initiative. Individuals can get additional benefits if they register the property jointly. You can buy a house jointly with anyone like your spouse, parent, friend, or a business partner.
When you avail a joint home loan, the tax benefits can be claimed by all the joint owners. However, each one who claims the tax benefits should have ownership in the property.
Also, the owners should be the co-borrowers of the home loan and should contribute to the EMI. Tax benefits are applicable only after the completion of construction of a property.
We have listed various tax benefits that are available to a taxpayer if he co- owns a property.
Residential house property
The Income Tax Act allows individuals to claim a tax deduction on interest payments of home loans. The upper limit for claiming a deduction on a self-occupied property is INR 2 lakhs for an individual per financial year after satisfying some conditions.
If it is a joint property, each property owner can claim a deduction up to INR 2 lakhs per financial year, separately. Thus, each co-owner can claim the tax benefit, provided they are co-borrowers of the home loan. This benefit is all the more beneficial if the interest payments for such home loan is more than INR 2 lakhs.
If rental income is earned out of the said property, it can also be divided between the co-owners.
Tax benefits under Section 80C
Section 80C of the Income Tax Act allows tax benefits on the principal repayment of the home loan. In case of joint ownership of property, each co-owner can claim deduction towards principal amount repayment. However, the maximum deduction limit under Section 80C is INR 1.5 lakhs.
Furthermore, stamp duty and registration charges can also be claimed by all co-owners in a jointly-owned property.
Tax exemption under Section 54
As per Section 54 of the Income Tax Act, individuals can avail tax exemption on long-term capital gains if it is invested in the purchase or construction of another residential property.
In the case of joint ownership, the capital gains can be divided between each of the owners. Thus, each co-owner can avail tax benefits as specified in Section 54. Each co-owner can invest in a new residential property and reduce the taxable capital gain.
An individual can claim tax exemption up to two residential houses if the capital gains is upto INR 2 cr.
Tax exemption under Section 54EC
Section 54EC allows individuals to claim a deduction of up to INR 50 lakhs on long-term capital gains on sale of a residential property. However, such an exemption can be availed only if the capital gains are invested in specified bonds. Rural Electrification Corporation (REC), Power Finance Corporation Ltd (PFC), Indian Railway Finance Corporation (IRFC) offer these bonds. The investment should be completed within six months of the date of sale/transfer. You can download the investments from here:
- IRFC: https://kosmic.kfintech.com/IRFC/download_applns.aspx
- REC: https://kosmic.kfintech.com/REC/download_applns.aspx
- PFC: https://kosmic.kfintech.com/pfc/download_applns.aspx
For jointly-owned properties, each co-owner can claim a deduction up to INR 50 lakhs. In total, owners can save a maximum of INR 1 cr on capital gains in joint ownership.
Please note that Section 54 and Section 54EC are applicable only if it is a long-term capital asset.
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