Archive / Investment Adviser (Level 2) / Concepts in Taxation

nism-series-xb-section-26-joint-ownership-rental-income-home-loan[ INVESTMENT ADVISER (LEVEL 2) ]

Under Section 26 of the Income Tax Act, how is rental income and Section 24(b) home loan interest deduction allocated when a residential property is jointly owned by a husband and wife (with 50:50 documented financial shares)?

[ A ]Both co-owners are assessed SEPARATELY in proportion to their 50% shares: each co-owner claims 50% of the rental income and can INDEPENDENTLY CLAIM UP TO ₹2,00,000 home loan interest deduction under Section 24(b) (Total household deduction up to ₹4,00,000).[ CORRECT ]

[ B ]The entire income is taxed 100% in the husband's return only.

[ C ]Joint owners are assessed as an Association of Persons (AOP) with zero individual deductions.

[ D ]Joint ownership is prohibited under the Transfer of Property Act.

Takeaway

The correct answer is A: with definite 50:50 co-ownership shares, Section 26 assesses husband and wife separately on their proportional rental income, and each can independently claim up to ₹2,00,000 of Section 24(b) home loan interest deduction, for a combined household deduction of up to ₹4,00,000.

Derivation

Section 26 applies whenever co-owners' shares in a property are 'definite and ascertainable' -- here, a documented 50:50 financial split. Rather than taxing the property as a single unit or as an Association of Persons, the law treats each co-owner as if they individually owned their share, computing rental income and allowable deductions separately for each. This means the Section 24(b) self-occupied/let-out interest deduction cap of ₹2,00,000 applies per co-owner, not per property -- so a jointly-owned, jointly-loan-financed house can effectively shelter up to ₹4,00,000 of combined interest across both spouses' returns, a planning point advisers frequently use.

Why the others fail

B — The entire income is taxed 100% in the husband's return only.

Contradicts Section 26's definite-shares rule; with documented 50:50 ownership, both spouses are assessed separately, not the husband alone.

C — Joint owners are assessed as an Association of Persons (AOP) with zero individual deductions.

Incorrect; Section 26 explicitly avoids AOP assessment when co-owner shares are definite, allowing each co-owner individual deductions instead.

D — Joint ownership is prohibited under the Transfer of Property Act.

False; joint property ownership between spouses is entirely lawful and common under the Transfer of Property Act, not prohibited.