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Income tax deduction on jointly owned let out house property

Mukesh S Boudai (Finance & Accounts officer) (32 Points)

10 August 2016

Facts of the case :- Amrita and her husband jointly hold a House Property (50:50 share). Housing Loan is also in joint name. Husband pays installment. Amrita never paid any installment though she is earning. The house is let out for Rs. 3,00,000/- per year. Interest on the loan is Rs. 4,50,000/- per annum.

Query :- How the income from house property and deduction of interest on housing loan will be shared between Amrita and her Husband ?

Option 1: Rent will be allocated 50:50 and interest also 50:50

Option 2: Rent will be allocated 50:50 but interest 100% to husband because he only paid interest

Option 3: Other way, please elaborate

I will be grateful if you could quote a case law

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7 Replies

suresh (proprietor) (425 Points)
Replied 10 August 2016

First of all you need to clarify the ownership ratio of the flat between husband and wife. All working will depend on the ratio of ownership. Simply joint holding will not decide the sharing of rentla income and interest paid on loan. So rent income is devided in the ratio of ownership. Interset paid on loan is to be devided in the propertion of loan amount for the said ownership ratio.

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suresh (proprietor) (425 Points)
Replied 10 August 2016

As you have described ownership ratio as 50:50 then rent will be devided in the ratio of 50:50.

Interest on loan will also be devided as 50:50, if margine amount is invested by both in the same proportion.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (166227 Points)
Replied 10 August 2016

"Amrita and her husband jointly hold a House Property (50:50 share). Housing Loan is also in joint name."

Answer is: Rent will be allocated 50:50 and interest deduction to her husband will be (2.25 -1.50) ie. 75K, No tax deduction to Amrita till she pays her part.

suresh (proprietor) (425 Points)
Replied 10 August 2016

Mr. Rambhia,

Interst on loan taken has to be chrged in propertion of the loan taken by each joint owner. It does not matter who repays the loan but the interst is to be charged to the person who has taken the loan. So if both the owners has taken loan for joint ownership for his/her share of payment, then interest will charged to both and will be available for deduction to both in thah propertion.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (166227 Points)
Replied 10 August 2016

@ Suresh Thanks for sharing knowledge.

@ Mukesh S. Husband can very well claim income tax exemption as specified under the act. If the husband is the only person repaying the loan, then he can claim the entire tax benefit for himself (provided he is an owner or co-owner). Both the spouse should enter into a simple agreement where wife should be stating that husband will be repaying the entire loan.

In that situation Option 2 can be followed.

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suresh (proprietor) (425 Points)
Replied 11 August 2016

But being the ownership rights 50:50, payments also to be made in the same ratio at the time of purchase.If wife has paid from the borrowed fund then to that extent interest will be charged in her account and accordingly interest will be deductible in the same proporation of payments made from borrowed fund to maintain the ownership ratio as 50:50 at the time of purchase of flat.

Soppose total coe of purcahse is say 100. loan taken 80 and payments made 20 from on fund in the ratio of 10 each. THen loan amount will be of 40 each to maintain ownership ratio of 50:50. Then interest will deductible in equal propertion. No matter who make the repayment of loan. Any excess or short repayment has to be adjusted by passing journal entery as internal loan transaction.

Mukesh S Boudai (Finance & Accounts officer) (32 Points)
Replied 19 August 2016

Dear Mr. Rambhia and Suresh,

Thanks for reply on my query. I have another submission. You know that in case of Self occupied property, there is limit of Rs. 2 lac on interest deduction. Further, if the house property is jointly owned, both husband and wife are eligible for deduction of Rs. 2 lac each.

You also know that there is not limit for inteterst deduction on Let out property. Isn't it logical that both Amrita and husband claim unlimited deduction ? I see Income and deduction provision separately. As the law is not clear on this aspect, I was looking for a case law based on the similar facts. Would be glad if I could get one.

Thanks & Regards,

Mukesh S. Boudai