How to File ITR for Joint Property Ownership and Claim Deductions

In India, the filing of Income Tax Returns (ITR) related to jointly owned property requires insight into certain provisions of the Income Tax Act that accommodate for co-ownership and the relevant deductions therein. For the Assessment Year (AY) 2025-26, many updates have made it easier and more favorable for taxpayers with joint ownership of property. Here’s a comprehensive guide for filing ITR for jointly owned properties and claiming the deductions available.

Understanding Joint Property Ownership

Joint property ownership is when two or more people have legal title to a property. Co-ownership in India can happen by inheritance, purchase or gifting. A co-whole owner has an assignable interest in the real property, through shareholding that may be equal or unequal between the co-owners.

Tax Implications for Joint Owners

The Income Tax Act, of 1961 recognises co-ownership and has provisions to compute income from such properties:

1. Individual Assessment: When a property is co-owned, and the share of each co-owner is definite and ascertainable, they are not assessed as an Association of Persons (AOP). Instead, each co-owner is taxed individually based on their share of the property income.
2. Income Computation: The income from the property is calculated as per the provisions under the head "Income from House Property." Each co-owner computes their share of income or loss from the property in proportion to their ownership stake.

Deductions Available to Joint Owners

The Income Tax Act provides various deductions to joint owners. Key deductions include:

1. Standard Deduction: A Standard deduction of 30% of the Net Annual Value (NAV) is permitted to every property owner for maintenance and repairs, regardless of how much was spent. This deduction is allowed to each co-owner in the ratio of his share in the property.
2. Interest on Home Loan (Section 24(b)): Each co-owner can claim a deduction for interest paid on a home loan up to ₹2 lakh per annum for self-occupied properties. For rented properties, there is no upper limit on the interest deduction. To avail this deduction:
   • The loan must be taken for the purchase, construction, repair, renewal, or reconstruction of the property.
   • The acquisition or construction should be completed within five years from the end of the financial year in which the loan was taken.
   • Each co-owner must be a co-borrower in the loan agreement.
3. Principal Repayment (under Section 80C): Each co-owner can claim a deduction under Section 80C up to ₹ 1.5 lakh per annum on the principal repayment of the home loan. This deduction has an overall limit of ₹1.5 lakh in a financial year under Section 80C along with similar investments and expenses.
4. Stamp Duty and Registration Charges: This is also a one-time amount that is deductible under Section 80C within the overall limit of ₹1.5 lakh, in the year in which such expenses are incurred.

Filing ITR for Jointly Owned Property

In the case of co-ownership, here are the necessary steps to file an ITR:

1. Determine Share of Income: Calculate the Gross Annual Value (GAV) of the property. Deduct municipal taxes to arrive at the Net Annual Value (NAV). Apply the standard deduction (30% of NAV) and deduct interest on the home loan to compute the income from the house property. Each co-owner will do this calculation in proportion to their ownership share.
2. Select the Appropriate ITR Form: The choice of ITR form depends on your sources of income:
   • ITR-1 (Sahaj): For individuals with income up to ₹50 lakh, having income from salaries, one house property, other sources (like interest), and agricultural income up to ₹5,000.
   • ITR-2: For individuals and Hindu Undivided Families (HUFs) not having income from profits and gains of business or profession.
   • ITR-3: For individuals and HUFs having income from profits and gains of business or profession.
3. Property Details Report: You need to enter the property details in the ITR form like address, co-owner details and share of income or loss.
4. Claim Deductions: Claim all the eligible deductions available under Section 24(b) and Section 80C.
5. TDS Details: In case there is Tax Deducted at Source (TDS) on the rental income, make sure these details are reported correctly in your ITR.

Common Mistakes to Avoid While Filing ITR for Joint Property Ownership

While filing Income Tax Returns for jointly owned properties, taxpayers often make certain mistakes that can lead to incorrect filings, rejections, or even tax penalties. Here are some common pitfalls to watch out for:

1. Incorrect Ownership Share Declaration
   • It is crucial to declare the exact ownership share as per the property purchase agreement or deed. Any discrepancy can lead to issues in tax assessment.
   • In cases where ownership share is not explicitly mentioned, it is assumed to be equal among all co-owners.
2. Not Being a Co-Borrower in the Loan Agreement
   • Many property owners assume that just being a co-owner is enough to claim tax deductions on home loans. However, tax benefits under Section 24(b) and Section 80C can only be claimed if the person is both a co-owner and a co-borrower.
3. Failing to Report Rental Income Correctly
   • If a jointly owned property is rented out, each owner must report their share of rental income in their respective ITRs.
   • Some taxpayers mistakenly report the full rental income under a single owner, leading to incorrect tax calculations.
4. Ignoring Tax Deducted at Source (TDS) on Rental Income
   • If the rental income exceeds ₹50,000 per month, the tenant is required to deduct 5% TDS under Section 194-IB before making the payment to the landlord(s).
   • Each co-owner should ensure that the deducted TDS is properly reflected in their Form 26AS while filing the ITR.
5. Not Claiming Deductions for Stamp Duty and Registration Charges
   • Many co-owners forget to claim deductions for stamp duty and registration charges under Section 80C.
   • These deductions are available only in the year of property purchase, so missing out on them can mean losing significant tax benefits.

How to Maximize Tax Savings on Jointly Owned Property?

To optimize tax savings while filing ITR for jointly owned property, taxpayers can follow these strategies:

1. Distribute the Loan in Favor of the Higher Income Earner
   • If one of the co-owners falls in a higher tax bracket (e.g., 30%) while the other is in a lower one (e.g., 10%), structuring the loan repayment in favor of the higher earner can result in better tax savings.
   • This ensures that the maximum deduction is utilized effectively.
2. Utilize the Full Deduction Limits for Home Loan Interest and Principal
   • Since each co-owner can claim deductions separately, they should make sure to maximize the ₹2 lakh deduction on interest (Section 24(b)) and ₹1.5 lakh on principal repayment (Section 80C).
   • This effectively doubles the tax benefits when compared to a singly owned property.
3. Consider Letting Out the Property Instead of Keeping it Vacant
   • If a second property is left vacant, it is deemed to be let out, and notional rental income is taxed.
   • However, if the property is actually rented out, the owner can claim full interest deduction (without the ₹2 lakh limit).
4. Maintain Proper Documentation
   • To avoid tax disputes, keep all relevant documents like property deed, home loan statements, municipal tax receipts, rental agreements, and proof of TDS deductions ready while filing ITR.

Recent Amendments and Their Impact

Several amendments were introduced for property taxation through the Income-tax Bill, 2025:

1. Self-Occupied Property: For taxpayers the benefit of two self-occupied properties will be high now without any condition. Motorists now won't be able to get a parking spot at the rear of a large commercial building. These modifications will ease tax filings for people holding many properties.
2. Interest Deduction Limit: The interest payable on borrowed capital for self-occupied properties remains deductible up to ₹2 lakh per annum, subject to a cap, provided the acquisition or construction of the property is completed within five years from the end of the financial year in which the loan was taken.
3. Arrears and Unrealised Rent: Any arrears of rent that are received or unrealized rent later realised would be charged to tax in the year in which they are received. A 30% deduction from those back wages is permitted to cover for maintenance and recovery costs.

Frequently Asked Questions (FAQ)