In general, when two or more individuals own property together, they are considered joint owners. Especially in India, joint ownership of a property by the husband and wife is a common way for couples to hold and share property together. If you are planning to purchase property with your better half any time in the immediate future, you should consider creating a written agreement outlining the respective share of ownership, rights and responsibilities, as well as any contingencies.
In terms of capital gains taxes, if the property is sold, the capital gain will be calculated based on the difference between the sale price and the original purchase price. Each owner will be responsible for paying taxes on their share of the capital gain based on their ownership percentage. BBig Consultants can help you to plan and save on your taxes.
Let's talk about the case of Smt. Shivani Madan (Taxpayer) vs the Assistant Commissioner of Income-tax. Mrs Shivani had purchased a house property in 2011 for Rs 3.5 crore in joint ownership with her husband. She had earned Rs. 24 Lakhs as salary during the year and she had not declared Income from House Property to the extent of her ownership.
The Assessing Officer (AO) questioned Mrs Shivani regarding non-declaration of the Income from House Property in her Income tax return for which it was submitted that the said property is owned by her husband. Her name in the sale deed is only for security purposes and that she contributed only 5.4% amounting to Rs. 20 lacs only.
AO didn’t accept the explanation as the sale deed of the property at the time of purchase had not defined shareholding between co-owners, therefore he considered the ownership as 50% each.
Since Mrs Shivani did not provide the expected justifiable rent of the property, and in the absence of any better way of estimating the rent, the rate of interest on cost of building and land may provide a reasonable basis for determining the annual letting value of property, more particularly when the property is occupied by the owners themselves or by their close relatives. Therefore 8% of the value of property as declared by the taxpayer is taken as annual letting value by the AO.
Considering the fact that the appellant was the joint owner of the property along with her husband, and since the sale deed did not specify the percentage of ownership. Part of the payment, however small, has been made by the taxpayer. The control over the property existed in the name of the wife and she was legally entitled to claim the income from the property.
It was held that the Assessing Officer was justified in holding that the wife was 50% owner of the property and taxing her share of Income from House Property in her hands. It is very important to note that the rules around taxation of joint ownership can be complex and may vary depending on the specific situation. It is always a good idea to consult with a trusted tax professional like BBig Consultants to fully understand the tax implications of joint ownership of property.
