Thus, when two or more than two persons jointly purchase one single property, and the property is then given on rent, then taking advantage of the above mentioned provision of the Income Tax Law as contained in Section 26 of the Income Tax Act, 1961 it would be possible for all the co-ownes to save income tax in respect of the income tax payable by them on account of house property.
If two or more than two persons jointly own the property the rental income so received is not subjected to tax as an association of persons but it is clearly assessed in the income tax files of different co-owners in their respective hands. What is required from the point of tax planning is to ensure that the rental income received is not in the name of one person but more than one family member jointly purchase the property from their respective funds.
Thus, the most important point which should be taken into consideration so as to reap the fruits of taxation of property income by different co-owners is that each co-owner bring in his or her separate funds for buying the property.
However, if the substantial funds are not available for making investment in the property, the loan could be taken from any person including relative, bank, etc. However, generally speaking, the interest on loan taken should be at reasonable rate particularly when the loan is taken from the spouse. Thus, the wonderful concept of coownership can help you to cut down your income tax payment on rental income. Just imagine if one property was purchased by one person in the individual name and put to rent and supposing the net rental income of the property which is purchased by one family member is ` 5,60,000 p.a. Obviously the rental income is in excess of ` 5,00,000 p.a. Hence the income tax payable by this gentleman would be within the highest slab of 30%.
On the other hand, had the same property been purchased by two family members as coowners then their respective income from house property would be ` 2,80,000 each. As the total income is within the income slab of `3,00,000, hence each co-owner would be required to pay income tax 10% on taxable income only.
Therefore, it is possible to cut down the rate of income tax in respect of your income from house property if you buy the property as co-owners in the name of two or more than two persons. A small tip here for buying co-ownership property.
When you are buying the property please make sure that you clearly define the percentage of ownership of each co-owner and also do ensure that each co-owner makes investment in the property equal to his/or her share in the property. The main important point to be taken care of when making investment in co ownership property is to ensure that the percentage of ownership is clearly spelt out in the sale/purchase deed. Similarly, each co-owner contributes money equivalent to his or her share in the property. There is no limit to the number of joint co-owners of the property.