Income Tax on Rental Income for Property owned by Co-owners under Income Tax Act 1961

By | June 7, 2014

Income Tax Treatment for Property Income .i.e Rental or Self Occupied in case of Property/House/ Flat  owned by Co-owners under Income Tax Act 1961. Under the Income Tax Act 1961 section 26 defined that the Property owned by the Co-owners then the each person share included in the Income from House Property and also in the total Income.

Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.

Explanation.—For the purposes of this section, in applying the provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section.

For the Purposes:-

  1. An individual who transfers his any house property to his spouse, minor child not included married daughter.
  2. The holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estates.
  3. A member of a co-operative society, company or other associates of person

Income Tax Benefit of Home Loan: There are two benefits which are available to home owners

  • Deduction under section 24 for payment of interest on home loan when the property is self-occupied or lying vacant due to specified reasons then owners can claim maximum deduction of Rs 150,000/- (Rs.1.50 Lacs) as loss from house property for interest paid on home loan, so joint owners can claim maximum deduction of Rs 1.50 lakhs individually in their Income tax return. Total Claim will be maximum of Rs 3 lakhs for 2 persons or amount paid as interest by them on loan.
  • Deduction under section 80C for payment of principal amount on home loan. Maximum deduction under Section 80C is Rs 100,000/-(Rs 1 Lakhs). Total Claim will be maximum of Rs 2 lakhs for 2 persons or amount paid as principal by them on loan.
  • Deduction in case property is given on rent, then owners can claim full interest amount against rental income.i.e no maximum deduction limits of Rs 1.50 lakhs is applicable.
  • All the claim for deductions will be divided between the co-owners/joint owners in the proportion of their ownership ratio given in agreement. In case no ratio is given then in the ratio of their payment of actual interest and principal (EMI) to the lender. If the house is given on rent then there is no restriction on amount of deduction under section 24(b) i.e. deduction for payment of interest on loan, claims can be made in the ratio of ownership or ratio of EMI payment.

Section 23(2) : Where the property consists of a house or part of a house which—

 (a) is in the occupation of the owner for the purposes of his own residence; or

 (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him,

the annual value of such house or part of the house shall be taken to be nil

S. 26 of the IT Act, 1961—Income from house property—Any income which is chargeable under head ‘Income from house property’ is to be assessed in hands of co-owners under s. 26 of the Act if their shares are ascertainable and such income cannot be taxed in hands of Association of person (AOP)—ACIT vs. Prabhakar Kamath

S. 26 of IT Act, 1961—Status—The Assessing Officer while assessing the assessee as association of persons and assessing rental income under “Income  from house property” has not considered the documents produced by the assessee whether the assessee is a firm and the partners have definite and ascertainable shares in the property. Therefore, matter is remanded to the Assessing Officer for fresh consideration—Shakti Farm House vs. Dy. CIT (2010) 323 ITR 661 (Karn)

S. 26 of IT Act, 1961—Status—The Assessing Officer while assessing the assessee as association of persons and assessing rental income under “Income  from house property” has not considered the documents produced by the assessee whether the assessee is a firm and the partners have definite and ascertainable shares in the property. Therefore, matter is remanded to the Assessing Officer for fresh consideration—Shakti Farm House vs. Dy. CIT (2010) 323 ITR 661 (Karn)

S.26, 56 & 167B of IT Act, 1961 — Income from other sources — The rent received from letting out the plinths is assessable under S.56 of the Act and, therefore, provisions of S.26 of the act have no applicability. — Sudhir Nagpal vs. ITO [2012] 349 ITR 636 (P&H)

Reference: – As Per Section 26 of the Income Tax Act 1961

Property owned by co-owners.

26.Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.

Explanation.—For the purposes of this section, in applying the provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section.

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