TOGETHER IS BETTER: If capital gain is under Rs two crore, avail benefit of exemption for investment in up to two residential houses
A house property may be jointly owned for several reasons. They may be jointly funded or jointly inherited. The government provides various tax benefits to taxpayers purchasing a house property. In case of joint purchase of a house, tax benefits can be availed by each taxpayer, thereby conferring additional tax benefits in case of joint ownership. Tax benefits available to joint owners:
Repayment of housing loan and interest payments
Taxpayers may purchase a house jointly for self-occupation. Taxpayers may fund the purchase through a housing loan and through their own funds. Such taxpayers would make repayments of the housing loan and pay interest on the outstanding loan amount. Each taxpayer who is a joint owner and a co-borrower of a housing loan can claim the tax benefits such as deduction for the interest paid on housing loan up to Rs 2 lakh annually (Section 24), deduction for the repayment of the principal portion of the housing loan, stamp duty and registration charges within the overall limit up to Rs 1.5 lakh annually (Section 80C), deduction for the pre-construction period interest in 5 equal instalments (Section 24). Thus, each taxpayer can claim a cumulative benefit of Rs 3.5 lakh for each financial year.
To avail the above deductions, a taxpayer must obtain his annual housing loan interest certificate from the financial institution, bank, etc. Further, the above tax deductions are available from the financial year in which the construction of the house is completed.
In the case of a let out house property, each of the joint owners would be taxed on the rental income proportionate to their share in the house property. Further, each co-owner who has made repayments of housing loan should obtain their annual housing loan certificate. Each co-owner can claim a deduction for the interest payments made by them against the rental income. In case the interest payments exceed the rental income, each co-owner is entitled to set off and carry forward loss from the house property up to Rs 2 lakh.
Additionally, similar to a self-occupied property, each taxpayer is entitled to claim a deduction for the repayment of the principal portion of the housing loan, stamp duty and registration charges within the overall limit up to Rs 1.5 lakh annually.
Reinvestment made in house property
Taxpayers who jointly own house property may sell the same and buy a new house property, for instance, to move to a different location, family reasons, etc. Such a taxpayer who would sell a house property and buy another house property can avail the benefits of capital gains exemption under the Indian tax laws. A capital gains exemption is allowed under section 54 of the Indian tax law for the purchase of new house property upon the sale of a house property.
The exemption for the capital gain is calculated on the basis of the number of capital gains reinvested into buying a new house property. The amount of exemption allowed is the lower of the capital gain or the purchase cost of the new house property.
Each of the taxpayers can compute their individual gains and avail of exemption upon reinvestment in another residential house. This would enable the joint owners to reduce the overall capital gains tax. To claim this exemption, the house property which is sold should have been held by the taxpayer for more than 2 years.
With effect from the financial year 2019-20, for transfers effected from 1 April 2019, taxpayers can avail the benefit of exemption for investment in up to 2 residential houses for capital gains not exceeding Rs 2 crore in total.
Investment in specified bonds
In the case of taxpayers who jointly own a house property, and sell the same can also avail of capital gains exemption by investing the capital gains in specified bonds i.e., Bonds issued by National Highways Authority of India (NHAI) and Rural Electrification Corporation Limited (REC). This exemption from capital gains is available under section 54EC of the Indian tax law. The amount of investment eligible for an exemption is capped at Rs 50 Lakh.
The amount of exemption allowed is the lower of the capital gain or the purchase cost of the specified bonds. Each of the taxpayers can avail a capital gains exemption for an investment up to Rs 50 Lakh made in the specified bonds. Thus, joint owners can save up to Rs 1 crore of the capital gains earned on the sale of house property. To claim this exemption the property which is sold should have held by a taxpayer for more than 2 years.
The write is founder and CEO, ClearTax
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