Rental income and home loan tax

Tax queries 1260 views 5 replies

Alok S

54 Points Posted on 11 September 2013

I co own a housing property with my wife and the property possession is due next month.

(i) Registered document does not mention definite share of ownership so I assume it 50:50.

(ii) We are paying home loan EMI in ratio of 70% and 30% from our respective salary accounts every month through ECS.

(iii) We have made an agreement on stamp paper stating our share in property (50:50) and loan share (70:30). We have also mentioned in agreement that any income arising from property will be shared in ratio of ownership. The agreement is notorised.

Please indicate whether this document is sufficient and can we split loan EMI and rental income as per above arrangement to avail tax benefits?

Please provide any additional details, IT rules which are to be considered. Please provide a link for records sake.

Thanks.

Replies (5)

Rajesh Kumar Loya

student

177 Points Posted on 11 September 2013

Dear Alok,

In my opinion, interest is to be shared on 50:50 basis. Reasons for the opinion,

1. There is concept of " deductions cannot exceed income". If for example you are having only rental income (50% share only), then u cant claim deduction to the extent of 70%.

2. Under house property, division of any amount is based on Ownership.

Alok S

54 Points Posted on 11 September 2013

Thanks Mr. Loya for reply.

Tax rebate on loan repayment is based on your respective share in loan and not in ownership of property. This is sure. In case one's wife is not working and property is in joint name, husband can take full rebate on repayment.

My doubt was only for rental income. As per the rules income from house can be only in proportion of ownership. Hence the doubt.

thanx.

Dhawal Mohnot

Practicing

449 Points Posted on 11 September 2013

In my opinion.

As a matter of principle, ownership of the property is mandatory for claiming deduction for Interest and principal repayment. The first question which arises is "In whose name is the property registered" If the property is registered in both names, then there is no issue at all, it is always presumed as 50:50. Repayment of loan can be made by both the parties however, there has to be a definite source for making repayment. Ratio of sharing EMI is not a problem so long as the source is defined.

As far as rent is concerned it has to be split 50:50 if in joint name.

Trust this clarifies. If not please feel free to repost.

CA Neha Agrawal

830 Points Posted on 11 September 2013

Rental income can be shared equally by both, provided rental agreement mentions lessor as both jointly. & rent credit in joint a/c of both. loan repayment sharing if loan is taken jointly depends who is the primary applicant & on whose income loan is granted. if both are earning loan repayment can be shared as per their own discretion for tax benefit

Alok S

54 Points Posted on 12 September 2013

Thanx Dhawal & Neha.

I am also of the same opinion as yours and this is logically correct also. My flat is registered in joint name of myself and my wife so both are 50:50 owners.

She is working and co borrower also, but due to salary difference we have made it 70:30 repayment.

So no doubts, but my employer (govt. of india dept.) is not agreeing to it. Can we have some quote / reference somewhere?

Thanx again.