Reporting Rental Income in a Co-Owned Property in ITR
- Bhavika Rajput
- Sep 10
- 10 min read
When it comes to co-owning a property,filing Income Tax Returns (ITR) can get complicated, especially when dealing with rental income. Property co-owners are responsible for reporting their share of rental income on their individual tax returns. This often requires careful documentation and an understanding of how income from jointly owned property should be allocated among co-owners. Additionally, the Income Tax Act provides various guidelines and exemptions that co-owners can utilize to reduce their tax liabilities. Let us outline the key aspects of filing ITR for co-owners, including income declaration, allowable deductions, and the impact of different tax slabs.
Table of Contents
Determine Ownership Shares
Before reporting rental income on your tax return, it's essential to determine the ownership shares between co-owners. In most cases, the ownership percentage is determined by the agreement made at the time of the property purchase or based on the deed of joint ownership. Typically, each co-owner reports their share of rental income according to the percentage of ownership.
For instance, if two individuals own a property with an equal share, they will each declare 50% of the rental income. If the ownership is divided differently—say one co-owner holds 70% and the other 30%—they will report rental income in these proportions. This allocation should be agreed upon by all co-owners and supported by relevant documentation, such as the deed of ownership, to avoid any confusion or discrepancies during tax filing.
Income Declaration
Once the ownership shares are determined, each co-owner is responsible for declaring their portion of the rental income. Rental income is categorized as "Income from House Property" under Section 22 of the Income Tax Act. Co-owners must declare their share of the income received from the property, including monthly rent payments or any advance rents received.
Co-owners should also report any rental income in the appropriate section of their tax return (ITR) under the "Income from House Property" category. It's important to declare the exact amount as per the share of ownership, and the income should be distributed accurately among the co-owners to avoid tax discrepancies.
Allowable Deductions for Co-Owners
Just like individuals who own properties on their own, co-owners are eligible to claim deductions on the rental income under the Income Tax Act. The most common deductions include:
Standard Deduction: UnderSection 24 of the Income Tax Act, co-owners can claim a standard deduction of 30% of the annual rental income. This deduction covers repairs, maintenance, and other expenses related to the property, without the need to provide detailed proof of individual expenditures.
Interest on Home Loan: If the property is financed by a home loan, each co-owner can claim a deduction for the interest paid on the loan. The deduction is available under Section 24(b) and is limited to ₹2 lakh per year for a self-occupied or rented property. The deduction is available based on the co-owner's share in the loan.
Principal Repayment: UnderSection 80C, co-owners can claim deductions for the repayment of the principal amount of a home loan. However, the amount claimed depends on the co-owner's contribution to the loan repayment.
Property Taxes: Property taxes paid on the property can also be deducted from the rental income under Section 23(2). Co-owners can claim deductions based on their share of property tax payments.
By utilizing these deductions, co-owners can reduce their taxable rental income, which ultimately lowers their tax liability.
Tax-Slab and Calculation for Rental Income
Co-owners must report their rental income in the relevant income tax slabs according to their share of the income. The income from house property is taxed as per the applicable tax slab rates based on the total taxable income of the co-owner.
For individuals, the tax slabs for FY 2024-25 (Assessment Year 2025-26) are as follows:
Old Regime Tax Slabs
Income Range | Tax Rate |
Up to ₹2.5 lakh | Nil |
₹2.5 lakh to ₹5 lakh | 5% |
₹5 lakh to ₹10 lakh | 20% |
₹10 lakh to ₹15 lakh | 30% |
₹15 lakh and above | 30% |
Key Notes:
Senior citizens (60-80 years) get a higher exemption limit of ₹3 lakh.
Super senior citizens (80 years and above) enjoy a ₹5 lakh exemption limit.
New Regime Tax Slabs (FY 2024-25)
Income Range | Tax Rate |
Up to ₹3 lakh | Nil |
₹3 lakh to ₹7 lakh | 5% |
₹7 lakh to ₹10 lakh | 10% |
₹10 lakh to ₹12 lakh | 15% |
₹12 lakh to ₹15 lakh | 20% |
₹15 lakh to ₹20 lakh | 25% |
₹20 lakh and above | 30% |
The rental income, along with any other income from other sources, will be taxed based on these slabs. Each co-owner will declare their portion of the rental income and calculate their tax liability accordingly.
Documentation to Maintain for Co-Owners
For co-owners of a property, maintaining proper documentation is essential for accurate tax reporting and compliance. Co-owners must ensure that they retain the necessary documents for filing their taxes, as these will be required to report rental income, claim deductions, and substantiate their claims in case of audits. The following documents are critical for co-owners to maintain:
1. Property Ownership Agreement
The property ownership agreement is a fundamental document that outlines the ownership share of each co-owner. This agreement should detail the percentage of ownership each person holds in the property and their respective rights and responsibilities. It is important for co-owners to ensure that this document clearly states the ownership proportion, as it directly affects the income distribution and tax filings.
This document is particularly relevant for determining the share of rental income for each co-owner. The ownership share will dictate how rental income and other expenses related to the property are divided among the co-owners. The Income Tax Department requires clear evidence of ownership to ensure the appropriate division of income for tax purposes. If there is no formal ownership agreement, co-owners may face difficulties in substantiating their claims and income division in the event of scrutiny or audit.
2. Rental Income Details
Co-owners must maintain a thorough record of all rental payments received during the year. This includes collecting rent receipts from tenants, copies of bank statements showing deposits, and any other supporting documents that provide evidence of the rental income. These details are crucial when filing taxes, as rental income is taxable under the head "Income from House Property."
Each co-owner is required to declare their respective share of the rental income based on the ownership agreement. Maintaining accurate records of rental payments ensures that the income is reported correctly and avoids discrepancies when filing returns. Additionally, these documents help in case of any disputes or verification requests from the Income Tax Department.
For those who receive payments through online transfers, co-owners should keep copies of bank statements or transaction records to show proof of rental income received. Rent receipts, which should include the date, tenant’s name, amount paid, and property details, are also crucial for substantiating rental income claims.
3. Home Loan Documents
If the property is financed through a home loan, it is essential for co-owners to retain all related home loan documents. These documents include the loan agreement, annual statements detailing the principal and interest payments, and interest certificates from the bank or lending institution.
Co-owners can claim deductions under Section 24(b) for the interest paid on the home loan. The deduction is available on the interest paid on the loan for the self-occupied or rented property. For co-owners, the deduction is allowed on a pro-rata basis according to their share in the property and their portion of the loan. The documents serve as evidence to substantiate the amount of interest and principal paid during the year, which is important for claiming deductions.
Furthermore, co-owners should maintain records of EMI payments made during the year. If the home loan interest is claimed as a deduction, the interest certificates provided by the bank will outline the total interest paid and can be used to back up claims during the tax filing process. Without this documentation, claiming home loan deductions becomes difficult.
4. Property Tax Receipts
Property tax is an important deductible expense for co-owners who want to reduce their taxable rental income. Property taxes are deductible under Section 23(2) of the Income Tax Act, which allows taxpayers to claim a deduction on property taxes paid during the year. This deduction can be claimed against rental income earned from the property.
Co-owners should keep copies of property tax receipts or payment confirmations to substantiate their claims for the deduction. These receipts will show the amount of property tax paid, the year for which the payment was made, and the details of the property for which the tax was levied. Keeping these receipts ensures that co-owners can claim the maximum eligible deductions when filing taxes, ultimately lowering their tax liabilities.
Why Proper Documentation is Critical
Maintaining accurate documentation is not just about complying with tax laws—it also ensures that co-owners can claim the deductions they are entitled to, avoid penalties, and protect themselves from any future audits or scrutiny. Proper documentation enables co-owners to prove their share of rental income, claim deductions for home loan interest and property taxes, and ensure compliance with the Income Tax Department’s regulations.
In case of a tax audit or any questions from the tax authorities, having a clear and well-maintained set of records provides the necessary evidence to support claims and avoid penalties or disputes. It also helps co-owners avoid situations where their tax filings are questioned, delayed, or rejected due to lack of proper supporting documents.
Additionally, by keeping track of rental income, expenses, and loan payments, co-owners can make better financial decisions regarding the property and prepare for future tax filings with ease. This ensures a smooth and efficient process when managing taxes for jointly owned properties.
Section 26 of the Income Tax Act, 1961
Section 26 of the Income Tax Act governs the taxation of income from jointly owned property. According to this section, each co-owner is taxed individually based on their share of the property. The section ensures that income, deductions, and liabilities are allocated according to the ownership share, ensuring that no one is taxed unfairly for the portion of the property they do not own.
This section also allows for the allocation of expenses such as interest on home loans and property taxes according to the ownership share. Co-owners should ensure that their tax filings are consistent with the ownership percentage outlined in the property documents to avoid discrepancies.
Conclusion
Filing taxes as a co-owner of a property requires careful planning and accurate allocation of rental income and deductions. Co-owners must determine their ownership shares and report rental income accordingly. By understanding allowable deductions and leveraging the benefits provided by the Income Tax Act, co-owners can reduce their taxable income and minimize their tax liability. Proper documentation and adherence to Section 26 of the Income Tax Act are crucial for ensuring compliance and avoiding any issues with the tax authorities. Taxpayers who are unsure about how to file or allocate rental income can benefit from using professional tax filing services to ensure their returns are accurate and complete. For a seamless, secure, and hassle-free experience, it is highly recommended to download theTaxBuddy mobile appto assist with your tax filing needs.
FAQs
Q1: How do I determine the share of rental income for each co-owner? Rental income must be divided based on the co-owners' respective shares in the property, as stated in the ownership agreement or property deed. For example, if two people co-own a property equally, they would each report 50% of the total rental income. If the ownership is not equal, the rental income must be divided according to each co-owner's share. The Income Tax Department expects co-owners to allocate rental income based on this proportional ownership.
Q2: Can co-owners claim deductions for home loan interest separately? Yes, each co-owner can claim deductions for the interest paid on the home loan based on their individual share of the loan. The maximum deduction under Section 24(b) for home loan interest is ₹2 lakh per year. If the co-owners share the loan equally, each can claim up to ₹2 lakh. If they share it unequally, each co-owner can claim a deduction based on their respective share of the loan repayment.
Q3: Are property taxes deductible for co-owners? Yes, property taxes paid on the property are deductible from rental income under Section 23(2). Each co-owner can claim a deduction for property taxes based on their share in the property. If the property is jointly owned, each co-owner must report their proportionate share of property taxes while filing their taxes.
Q4: What is the maximum amount of deduction available for principal repayment under Section 80C? Under Section 80C, the maximum deduction available for principal repayment on a home loan is ₹1.5 lakh per year. Each co-owner can claim this deduction based on their share in the loan repayment. If two co-owners are sharing the home loan equally, both can claim the ₹1.5 lakh deduction separately.
Q5: What documents do co-owners need to maintain for tax filing? Co-owners should maintain a variety of documents to support their tax filings, including:
The property ownership agreement or deed to show the share of each co-owner.
Records of rental income received from the property.
Home loan documents that show each co-owner’s share of the loan.
Property tax receipts to verify taxes paid.
Proof of home loan interest and principal repayment payments.
These documents are essential to ensure accurate reporting of rental income and deductions on their ITR.
Q6: Can co-owners claim deductions for repair and maintenance costs? Yes, co-owners can claim a 30% standard deduction on rental income under Section 24, which covers general expenses, including repair and maintenance costs. If co-owners incur specific costs for repairs, maintenance, or improvements, these expenses can also be claimed as deductions, provided they are properly documented with receipts and invoices.
Q7: How are rental income and deductions reported on the ITR? Each co-owner should report their share of rental income under the "Income from House Property" section of the ITR form. Deductions related to home loan interest, principal repayment, property taxes, and repairs can be claimed in the same section. It is important to ensure that only the co-owner’s share of income and deductions is reported, not the entire amount.
Q8: What happens if the rental income is not reported correctly? If rental income is not reported accurately, the Income Tax Department may issue notices to the taxpayer for discrepancies, leading to penalties and interest on any underreported taxes. Failure to report rental income properly can also trigger an audit, causing further delays and potential financial penalties.
Q9: Are there any exemptions available for co-owners regarding rental income? Co-owners are eligible for the standard 30% deduction on rental income under Section 24, which is allowed as a flat deduction for repairs and maintenance. Additionally, co-owners can claim deductions for home loan interest under Section 24(b) and principal repayment under Section 80C. No specific exemption is available solely based on co-ownership, but these deductions help reduce the taxable income.
Q10: How is the tax calculated on rental income for co-owners? Each co-owner’s share of rental income is added to their total income and taxed based on their individual income tax slab. Deductions for home loan interest, property taxes, and repair costs are subtracted from the rental income before calculating the tax payable. Each co-owner’s tax liability will depend on their overall income, including their share of rental income.
Q11: Can co-owners file jointly for rental income? No, co-owners cannot file jointly for rental income. Each co-owner must file separately, reporting only their share of the rental income. The Income Tax Act treats each co-owner as an individual taxpayer, and thus, each must report their income and deductions separately, even if they jointly own the property.
Q12: What is Section 26 of the Income Tax Act? Section 26 of the Income Tax Act deals with the division of income from jointly owned property. It ensures that rental income and expenses related to the property, such as property taxes and home loan interest, are divided and taxed according to each co-owner’s share. This section makes sure that each co-owner is taxed based on their actual share in the property, not on the entire income or expense.
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