As joint house owners of a flat, how will we scale back tax legal responsibility on hire?

I’m planning to purchase a flat in NCR together with my spouse as joint proprietor. I’m funding 70% of the property, whereas my spouse is contributing 30%. We have taken separate dwelling loans. We intend to hire out the brand new flat and must pay tax on hire. My spouse is within the 10% tax bracket and I’m within the 30% tax slab. We wish to scale back our tax burden. Also, in future, can my spouse enhance her share within the property by paying me for that share. Should the proportion of our share be written within the sale deed.

—Name withheld on request

Under the provisions of the Income Tax Act, 1961, the revenue arising from an asset is assessable within the arms of the taxpayer who has paid for it.

Since you’re contributing 70% of the funds and the steadiness 30% is being contributed by your spouse, you may declare the rental revenue in each your names within the ratio of your share within the property.

One must also be differ of the truth that disproportionate rental revenue will entice opposed implications below Section 60, which states that revenue might be clubbed within the arms of proprietor of the asset when revenue is transferred with out transferring the asset.

Income which you earn from letting out the stated property shall be taxable below the top “Income from House Property”. From the rent received, a deduction of 30% of the rent received is allowed. In respect of the interest on loan taken for such let-out properties, the full interest under Section 24 can be availed as a tax exemption. Principal repayment of loans taken for the purchase of residential houses is available within the overall limit of ₹1.5 lakh under Section 80C.

It is possible for your wife to purchase your share in the property for adequate consideration, subject to a minimum floor valuation of the property as per prevailing stamp duty rates as provided in Section 50C of the Income Tax Act.

If the plot qualifies to be a long term capital asset at the time of sale (i.e. held for more than 24 months), one may explore reinvesting the capital gains for purchase/construction of another residential house to reduce the exposure of capital gains tax outflow, subject to the overarching conditions stipulated in Section 54F. Alternatively, given that you and your wife would qualify to be ‘relatives’ under the Income Tax Act, gifting may also be an alternative.

However, please note that under both the alternatives, additional registration and stamp duty charges will be required to be paid to effectuate the revised ownership structure in the official documentation.

Lastly, from the perspective of robust succession planning and to avoid any ambiguity at a later stage, it is highly advisable to have each individual’s share defined in the sale deed.

Keshav Singhania is head – private client, Singhania & Co

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Updated: 10 Oct 2023, 10:28 PM IST