Bombay High court in the case of P.R.Thakkar :-
held that a reading of sections 20 to 26 of the said Act made it clear that, where a house property was owned by co-owners who had definite and ascertainable shares, the gross income from such property was first to be ascertained on the basis of the provisions of section 23 of the said Act. From such gross income, the deductions under section 24 had to be made. This gave the net income from the total property as available to the co-owners. The net income was then to be allocated to each of the co-owners in the proportion of their respective shares. After this was done, each of the co-owners was entitled to the deductions under section 24. Each was entitled to the deduction of interest on the amount of money that he might have borrowed for the construction or acquisition of his share in the house property.
So, Co-owners are entitled to a deduction of up to a maximum of Rs 1.5 lakh each on account of interest paid on the home loan. However, if the house is given on rent, then there is no limit on the amount of deduction on account of interest paid on the borrowed capital.
Can both co-owners claim IT benefits separately?
Yes. Co-owners can claim IT benefits separately, as per the share holding in the property (such as 1:1 or 3:2). If share holding is not mentioned in the purchase deed, they can execute an agreement on requisite stamp paper mentioning the share in the property and claim the benefits separately. Both can claim deduction up to Rs.1.5 lakh a year separately, towards interest paid (for self-occupied house and entire interest paid on rented out house, after computing rental income received) and also up to Rs.1 lakh towards principal loan repaid.