Income From Joint Property Is Determined By Way Of Beneficial Ownership Of Property

I have one house in my name which was purchased long ago. We lived in it. Last month, I purchased a flat jointly with my wife and son. My son is a non-resident and does not have any income in India. So, he has not filed any income tax return in India till now. The new flat has been let out on rent, and the amount is credited to my son’s bank account in India. We are paying maintenance of about Rs. 2,500 per month for the new flat along with property tax as levied by the municipal corporation. Can we divide the rental income equally among all the three joint owners? 

Answer: It is the beneficial ownership of the property which determines in whose hands the income from the property will become taxable. Just because the flat is purchased jointly does not mean that all the joint holders of the property become beneficial owners of that property. It is the ratio in which the cost of the flat purchased is contributed by the respective joint holders that determines the beneficial ownership of the property. Even the order in which the names of the joint owners are mentioned in the property document is also not relevant for this purpose. In case a particular joint owner has not contributed anything, he is not treated as beneficial owner of the property. In case one or more of the joint owners fund his/her share of the cost through a home loan, the same shall be part of his/her contribution towards the cost of the property.

So, the rent received by you is required to be divided among the joint owners on the basic of contribution of each of the joint holder towards the purchase of the flat.  From the rent received, you are allowed to claim deduction for municipal taxes paid, along with a further deduction of 30 per cent of the balance amount after deducting municipal tax that is available to each of the beneficial joint owner against their share in the rent received. The resulting figure is taxable income from second house for each of the beneficial owner. Please note that no deduction is available in respect of maintenance charges paid for the property.

If both husband and wife are employed and are residing together in a rented apartment, are both eligible to claim exemption of house rent allowance (HRA), or only one spouse can claim the exemption? Is the full HRA received exempt? 

Answer: Exemption for house rent allowance (HRA) is available only to a salaried person who is in receipt of HRA from his/her employer for the rent paid in respect of the house occupied by him/her, and which is not owned by him/her. So, both husband and wife can claim HRA exemption if both are paying rent for the house they are staying in. This can be done provided the rental agreement is made in the names of both husband and wife.

Full HRA is not exempt. The amount of deduction available for HRA is lowest of the following three: 

1. HRA actually received, 

2. Excess of rent paid over 10 per cent of the basic salary, and

3. 50 per cent of basic salary in case the house is situated in a metro city, or else 40 per cent of basic salary elsewhere.

The author is a tax and investment expert

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)