Tax treatment of a house property owned by co-owners (as set, 1961 Act, AY 2017-18)

The rule of section 26

A house owned by two or more persons is dealt with by section 26. What decides the treatment is whether each co-owner's share in the property is definite and can be ascertained.

Shares definite and ascertainable

• The co-owners are not assessed as an association of persons for that property (section 26).
• The income from the property is first worked out as a whole under sections 22 to 25: annual value, municipal taxes, the 30% deduction and interest on borrowed capital.
• Each co-owner's share of that income is then included in his or her own total income under the head income from house property.
• Where the house is occupied by the co-owners for their own residence, each co-owner is treated as entitled individually to the relief of section 23(2) (Explanation to section 26). So each takes a nil annual value for his share, and each may claim interest on borrowed capital up to the ceiling of section 24(b), ₹30,000 or ₹2,00,000 as the case may be, on his own share of the interest. The higher ceiling of ₹2,00,000 applies only where the house is acquired or constructed with capital borrowed on or after 1 April 1999, the purchase or building is finished within five years from the end of the financial year of the borrowing (second proviso to section 24(b)), and the lender's certificate of the interest payable is furnished (third proviso); otherwise the ceiling is ₹30,000.

Shares not definite

If the shares are not definite and ascertainable, section 26 does not apply. The co-owners are then assessed together as an association of persons on the income from the property, and each member's share is dealt with under the rules for members of an association of persons.

Example 1: a let-out house

Ravi and Sunil own a house in Pune in the ratio 3: 2. It is let at ₹30,000 a month, which is more than its expected rent. Municipal taxes paid are ₹24,000 and interest on the loan taken to build it is ₹60,000.

Each includes his share in his own income; neither is assessed as an association of persons.

Example 2: a self-occupied house

Meena and her sister Asha own a flat equally and both live in it. Interest on the loan for its purchase (taken after 1 April 1999, the purchase completed within five years from the end of the financial year of the borrowing, and the bank's certificate of the interest obtained) is ₹3,20,000 for the year. Each has a nil annual value for her share (Explanation to section 26). Each sister's share of the interest is ₹1,60,000, within the ₹2,00,000 ceiling for each, so each has a loss of ₹1,60,000 under the head. Had the flat belonged to one person, the deduction would have stopped at ₹2,00,000.

Other points

1. The ownership share, not the use, decides what each co-owner is taxed on.
2. A co-owner who transfers a house share to a spouse or minor child for no adequate consideration may still be the deemed owner of it (section 27(i)).