In the time of inflation, it is very difficult to buy a house and it has become a dream for many in India. Making the new house purchase a beneficiary affair for the citizens of India, the government is giving the benefit of tax under the ‘housing for all’ initiative. And one of the key highlights is that the property must be purchased jointly instead of individually as extra charges might be levied at the same cost.
So given below are the four main points on the tax benefits if anyone wants to purchase a house property jointly. The individual can become jointly not only by spouse or parents but also with friend, relative as well as a business associate.
Higher Deduction for the Interest Paid on the Housing Loan
According to the clause of the Income Tax Act, 1961 (Act), under the head “Income from house property”, one can easily claim a deduction paid on the interest of the housing loan. There are two cases for claiming the deduction of interest paid. They are-
- The first case is that, if the house property is owned by an individual, then he/she can claim the deduction of up to Rs 2 lakh per FY for the interest paid on the housing loan.
- The second case is that, if the house property is owned jointly, then the two joint members can each avail of the deduction of up to Rs 2 lakh per FY for the interest paid on the housing loan.
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Rental Property Loss Benefit to Each Owner
Same as above, the joint property holder will also get a tax benefit to the individual who gets rent income.
- Firstly, the rent income will equally be divided between both the owners. And if in case any one of the co-owners falls under the lower tax slab rate, then he/she can get the profit of the lower tax rate on one part of the income received from the rent.
- Second, if the interest in the loan is higher than the rental income per year, jointly-owned property owners can set off up to Rs 2 lakh each per FY against the loss.
Tax Benefits Under Section 54
The tax will be levied on the capital gains which are earned from the sale of the house property. According to section 54 of the Act-
- If an individual buys another house property within the specified time period, then the total money invested to buy the new house can be set off against the taxable capital gains. Section 54 has specifically stated, “the amount invested in one residential house property (two properties in certain cases as introduced by Budget 2019) can be reduced from the capital gains”.
- If the house property is held jointly, then the capital gains can be availed individually by both the members and each one will get the benefit of provision and can also limit the taxable capital gains. Each one can utilize small or all the area of the first house sale to buy another house within the specified time and can also reduce the taxable capital gain. Therefore the total tax levied on the capital gain can be reduced.
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Tax Benefits Under Section 54EC
National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC) offer the popular section 54EC bonds and according to the Income Tax Act of 54EC-
- If an individual wants to invest in stipulated bonds then he/she can avail the deduction on the capital gains of up to Rs 50 lakh from the house property sale. In India, especially in metro cities, keeping in mind the real estate prices, a reduction of Rs 50 lakhs cannot be enough to cover capital gains and the tax on the profits earned by individuals over Rs 50 lakh has to be paid.
- If the property is held jointly, then both of them can invest in stipulated bonds separately and will also get a deduction of Rs 50 lakh each on the investment they make.
Conclusion: So, at last, we can say that having a house in joint names gives many tax benefits. Also, note that
- The funds to buy the house property must be given by both owners.
- The shares of both of them must be definite and determinable.
Income tax officials are increasingly investigating the shares financing and allocation of house properties where joint names are similar and the tax benefits are being claimed by more than one person, especially when a person is in a low tax bracket.
