Reporting Rent Received from Property Co-Owned with Spouse
- Farheen Mukadam
- Sep 10
- 9 min read
Co-ownership of property can have significant implications when it comes to filing taxes and reporting rental income. When multiple individuals own a property together, they are each responsible for reporting their share of the rental income and taxes accordingly. However, understanding the tax obligations and ensuring the proper filing of income tax returns (ITR) for co-owned property can be a complex process, especially when the ownership shares are not clearly defined or when multiple owners contribute to the property in different ways. Let us understand the nuances of co-ownership, how to calculate and report taxable income, and the essential documents you need to disclose to the Income Tax Department.
Table of Contents:
What is Co-Ownership and How Does it Affect Rent Reporting?
Co-ownership refers to a situation where two or more individuals jointly own a property, and each person has a specific share in the ownership. This can include both residential and commercial properties. In the case of rental properties, co-owners are required to report their share of rental income and pay tax accordingly.
The Income Tax Act treats co-ownership as a joint venture, meaning that each co-owner is responsible for reporting their portion of the rent earned from the property based on their share of ownership. The rental income should be split between the owners according to their ownership ratio, and each co-owner must include this in their income tax return.
For example, if two people own a property equally, each would report 50% of the rental income as taxable income. If the ownership is not equal, the rental income will be divided proportionately based on the actual share in the property.
How to Calculate and Report Taxable Income from Co-Owned Property
To calculate the taxable income from co-owned property, the first step is to determine the rental income earned. Once the total rental income is known, it must be divided among the co-owners in proportion to their ownership shares.
For instance, if a property generates ₹60,000 in annual rental income and there are two co-owners with equal shares (50% each), each co-owner would report ₹30,000 as taxable rental income.
After determining the share ofrental income, each co-owner can also claim deductions available under the Income Tax Act, such as a standard deduction of 30% for repairs and maintenance. Other deductions, like home loan interest payments, can be claimed proportionately by each co-owner based on their contribution to the loan.
It's essential to report the rental income on Schedule E of the ITR form and ensure that the ownership share is clearly mentioned for each co-owner.
Essential Documents and Disclosure for Joint Property Owners
When filing taxes for co-owned properties, it's crucial to have the right documentation and disclose all relevant details. Co-owners should provide the following documents for accurate reporting:
Property ownership documents: This includes the title deed and any legal paperwork showing the ownership percentage of each co-owner.
Rental income details: A statement of the total rental income earned from the property during the financial year, along with the share of income for each co-owner.
Proof of expenses: If deductions are being claimed (e.g., home loan interest, maintenance expenses), co-owners should provide supporting documentation like bank statements, loan statements, and receipts for repairs or improvements.
PAN details: Each co-owner must provide their Permanent Account Number (PAN) for proper filing.
TDS certificates: If tax has been deducted at source (TDS)on rental income, TDS certificates should be submitted.
Failure to provide the necessary documents or to disclose the correct ownership share can lead to penalties or issues with tax processing.
What Happens if Ownership Share is Not Specified?
If the ownership share of each co-owner is not specified, it can lead to complications in the tax filing process. The Income Tax Department may treat the property as jointly owned without determining the specific share of each owner, which could lead to unequal or incorrect reporting of rental income.
In such cases, co-owners will need to provide evidence or clarify the proportion of ownership. If ownership shares are ambiguous or disputed, the tax authorities may require additional documentation, such as a partnership deed, memorandum of understanding, or other legal records to resolve the issue.
Without clear ownership details, the property’s rental income may be taxed on an equal basis, which may not align with the actual contribution of each co-owner. This can lead to discrepancies in the return filing and potential tax liabilities for co-owners who were not allocated the correct share.
TDS Deduction and Tax Filing for Co-Owners
Tax Deducted at Source (TDS) applies to rental income if the rent paid by the tenant exceeds ₹2.4 lakh per annum. In such cases, the tenant is required to deduct TDS at a rate of 10% and deposit it with the government. Co-owners must ensure that the TDS is correctly apportioned based on their ownership share.
If one co-owner is listed as the recipient of the rent payment and TDS is deducted in their name, they must ensure that the TDS amount is divided among all co-owners in proportion to their ownership. The co-owner can then claim their share of the TDS against their tax liability when filing their ITR.
Failure to report the correct TDS amount can result in a delay in receiving the appropriate refund or may cause issues during tax assessments.
Clubbed Income: When Does it Apply in Co-Ownership Situations?
Clubbed income refers to the income of one person being added to another person’s income in specific situations under the Income Tax Act. In the context of co-ownership, clubbing of income typically does not apply to rental income, as each co-owner’s share is reported separately according to their ownership percentage. However, in cases where one co-owner receives rental income on behalf of the others, the entire amount might be considered as part of that co-owner’s income.
Additionally, clubbing provisions may apply if the co-owners have made certain joint investments in the property, such as home loans, where the deduction benefits are shared. In such cases, the tax liability and benefits may be distributed based on the contributions of each co-owner.
It’s essential to avoid mixing personal and property-related income to prevent unintended tax consequences.
Conclusion
Co-ownership of property introduces specific tax implications that require careful attention. Reporting rental income accurately and ensuring proper disclosure of ownership shares are crucial steps to avoid penalties and ensure that tax filings are correct. Co-owners must ensure they calculate their taxable rental income based on their share, report it correctly in their income tax returns, and provide the necessary documentation to substantiate their claims. By understanding the tax obligations involved, co-owners can ensure compliance and avoid issues with the Income Tax Department. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile appfor a simplified, secure, and hassle-free experience.
FAQs
Q1: How do I determine my share of rental income if the ownership percentage is not specified?
If the ownership percentage is unclear, it’s essential to clarify this with the other co-owners and provide any legal documentation that reflects the ownership split. If necessary, you may need to consult legal professionals or refer to the property deed to determine the share. If no formal agreement is in place, you can discuss and mutually agree on a fair share, but it’s important to ensure all co-owners are on the same page. Clear documentation will help avoid disputes and ensure correct tax filings.
Q2: Can I claim deductions for home loan interest if the property is co-owned?
Yes, you can claim deductions for home loan interest if the property is co-owned. However, the deduction is proportional to your share in the loan and the property. Each co-owner can claim a deduction based on their contribution towards the loan repayment. For instance, if you jointly own the property with another person, and you contribute 50% to the home loan repayment, you can claim 50% of the home loan interest under Section 24(b) of the Income Tax Act.
Q3: What happens if I don’t report rental income from a co-owned property?
Failure to report rental income from a co-owned property can result in penalties, interest, or legal action by the tax authorities. The Income Tax Department expects all rental income to be reported, and non-disclosure can lead to discrepancies in your filed returns. It's essential to report your share of rental income accurately to avoid any possible audits or penalties. Always ensure that rental income is reported based on the agreed ownership share, as this can also affect the calculation of your tax liabilities.
Q4: How do I split rental income if my co-ownership share is unequal?
If your co-ownership share is unequal, the rental income should be split based on the actual share of ownership in the property. For example, if you own 60% of the property and your co-owner owns the remaining 40%, you should report 60% of the rental income as your taxable income, and your co-owner will report 40%. This split should be reflected accurately in your respective tax filings, and the ownership share should be substantiated by the legal documents or agreements related to the property.
Q5: Can I include my co-owner's share of rental income in my ITR?
No, you should only report your share of the rental income in your ITR. Each co-owner must report their respective share based on the proportion of ownership. Including your co-owner's share in your tax return could lead to discrepancies and may result in penalties or an audit. Ensure that the rental income reported in your return corresponds only to the percentage of ownership that you hold in the property.
Q6: What if my tenant deducts TDS from the rental income?
If your tenant deducts TDS from the rental income, ensure that the TDS is properly divided among co-owners based on the ownership ratio. Each co-owner can claim their respective share of TDS as a credit against their tax liability. For example, if the total TDS deducted is ₹5,000 and you own 50% of the property, you can claim ₹2,500 as your credit, and your co-owner can claim the other ₹2,500. Make sure the TDS details are correctly reflected in the Form 26AS to avoid discrepancies.
Q7: Can TDS be deducted on rental income if the rent is less than ₹2.4 lakh per annum?
No, TDS is not applicable if the rent is less than ₹2.4 lakh per annum. According to Section 194-I of the Income Tax Act, TDS is only applicable on rental income if the total annual rent exceeds ₹2.4 lakh. If the rent falls below this threshold, tenants are not required to deduct TDS, and as a property owner, you do not need to worry about TDS deductions on your rental income.
Q8: How does joint ownership affect the taxability of rental income?
Joint ownership means that the rental income must be split between the co-owners based on their respective shares. Each co-owner is responsible for reporting their share of the rental income on their tax return. For example, if two people co-own a property and each holds a 50% stake, they each report 50% of the rental income on their individual tax returns. Additionally, each co-owner can claim deductions for their share of expenses, such as interest on home loans or property maintenance costs, based on their share of ownership.
Q9: What if the property is jointly owned by multiple family members?
If the property is jointly owned by multiple family members, each member is required to report their share of the rental income based on the ownership percentage. Even though family members may have a close relationship, the tax treatment of rental income is strictly based on the legal ownership percentage. Therefore, each family member must report their corresponding share of income and can claim deductions accordingly. The share of rental income and deductions should be supported by legal documents or mutual agreements among the co-owners.
Q10: Can I file an ITR for a co-owned property without my co-owners?
Yes, you can file your ITR independently for your share of the rental income from a co-owned property. However, it’s important to ensure that you provide accurate details of the property’s ownership and your share of the income. Although you can file individually, make sure to report only your portion of the income and claim deductions proportional to your ownership share. This will avoid complications in case of audits or discrepancies.
Q11: Can I claim tax deductions on the entire home loan interest if the property is co-owned?
No, you can only claim tax deductions on the home loan interest based on your share in the property. If the property is co-owned, each co-owner can claim the home loan interest deduction proportional to their share of ownership and the amount they have paid towards the loan. If you own 50% of the property and contribute to 50% of the loan repayment, you can claim 50% of the home loan interest under Section 24(b) of the Income Tax Act.
Q12: What should I do if my co-owner and I have different tax regimes (old vs new)?
If you and your co-owner choose different tax regimes (old vs. new), each of you will file your taxes separately under your chosen regime. The ownership share of rental income remains the same, but the tax regime you select will determine your deductions and tax liabilities. It’s important to ensure that both parties are clear on which tax regime they are opting for and to file separately under the respective regimes. Additionally, it’s advisable to consult with a tax professional to understand the implications of choosing different tax regimes for the same property.
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