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TDS Rules on Sale of Jointly Owned Property

TDS means tax* deducted at source and in the case of a jointly owned property, a certain amount of tax is deducted if any payment is made in relation to the property transaction. It is essential that the share of each owner is mentioned so that the TDS payments and tax liabilities can be determined.

Real estate is one of the top investment choices among people. It becomes a saving option for some of the hefty future expenses, including marriage, accidental emergencies, and healthcare. These properties can have an individual owner or can be owned jointly by partners or a couple. If the property is jointly owned, the gains and taxes* have to be shared if the property is rented out or sold. 
 

Many people prefer to buy a property jointly which means that the property is owned by more than one person. There are many reasons to do this, and one of the top reasons is the smooth funding of the property. However, when you purchase a property jointly, it becomes essential that you comply with all the applicable TDS rules and regulations. 
 

Read on to find out more information on TDS on joint property.

What are Jointly Owned Properties?

Joint-owned properties are held in the name of 2 or more parties. These parties can be related in any of these ways:
 

  • They can be blood-related relatives, business partners, or any other partnership that justifies the reason to co-own a property. 

  • If a wife and a husband own a property together, then the status of this ownership is justified under the marital status. 

A property that is jointly owned goes through many different legalities like community property, trust, or joint tenancy. In the case of joint ownership of a property, all partners have equal rights and obligations to the property until their death. 
 

So, every co-owner of the property must adhere to the TDS rules and regulations that are applicable to the sale, purchase, and renting of the property. Also, ensure that you keep a check on the TDS deductions as well.

Who Will Have to Pay the TDS on a Joint Property? 

A TDS payment on any joint-owned property refers to the tax that is deducted on any transaction related to the property. The Income Tax Act has mandated that in case of a sale or purchase of a property, the buyer or the seller (as applicable) must deduct a certain amount of tax and deposit that amount with the Indian government. This will be the TDS on a joint property. 
 

If the share of each individual owning the property is less than ₹50 lakhs, then they are not liable to pay any TDS.

How Can the TDS Share of the Owners be Calculated?

There are many different methods to understand the share of tax that has to be paid by each co-owner of the property:
 

  • Tax liable on the amount of rent received for the jointly owned property

    According to the Income Tax Act, if the property has been rented out, you are liable to pay tax on the rent that you receive. If the property has been acquired on a mortgage, then you can deduct the interest that you pay on this rental property. The loss from a house property is fixed at  ₹2 lakhs for every fiscal year and any other income cannot offset it.
     

    However, if you receive a rental income from the property, the amount will be split up on the basis of your shares in the property. In that case, each person is liable to pay the tax as per the rental income share that they receive. 

  • Tax applicable on the joint ownership of the house where the ownership shares of each owner are not specified in the house sale deed 

    According to the Income Tax tribunal’s Delhi branch, if the sale deed of a house has no mention of the shares of each owner, then it will be considered that each owner holds an equal share in the property. For example, for 2 parties, the share of each party will be considered as 50% of that property to calculate the tax. 
     

    This means that any amount of income that they earn as rent or Airbnb income will be considered equally split between the owners, and each of them will pay tax on the share that they own. Thus, the tribunal considers that for 2 owners, both owners have a 50% share of the property until there is evidence that states some other ownership percentages.

  • TDS on sale of property in case of joint sellers

    When the jointly owned property is sold, the buyer of the property has to deduct the TDS amount from the total amount paid to the property seller. The TDS liability is divided on the basis of the share of property that is owned by each property owner. As per their respective share of the property, the co-owners are liable to pay taxes on the capital gains earned from the sale of the property. 
     

    The buyer will have to make a TDS deduction based on the rate that is prevailing (this varies and depends on factors like total consideration and the type of property) on the total sale consideration. But, the tax liability and capital gains have to be computed by the property’s co-owners.

  • Tax on the profit earned from the sale of any property

    When any property is owned jointly, the tax on capital gains is divided on the basis of the share of your capital gains. The tax that has to be paid by each owner depends on the applicable income tax slabs and the time period for which the property has been owned. 
     

    Here is the list of the exemptions available on tax on capital gains that owners have earned from a jointly-owned property:
     

    • Section 54EC

      Under this section, you can avail of an exemption of up to  ₹50 lakhs from any long-term capital gains that you have earned on the sale of any residential property if the amount is used to finance another residential property within a period of 2 years of this sale.

    • Section 54F

      Under this section, you can avail of an exemption of up to  ₹2 lakhs from any long-term capital gains that you have earned on the sale of any residential property if you invest the amount in NPS (National Pension Scheme) within a period of 60 days from this sale.

    • Section 54GB

      Under this section, you can avail of an exemption of up to  ₹1 crore from any long-term capital gains that you have earned on the sale of any residential property if the amount is invested in a certain infrastructure project within a period of 3 years of this sale.

It is essential that you meet all the requirements so that you can avail of exemptions with ease. You can also consult an expert to understand which exemption would be suitable for you.

Rules for TDS on Property Sale of Joint Owners

 

 

Here are some of the rules and regulations that one must follow with regard to TDS on sale of property: 
 

  • As per the new regulations, income tax has to be levied individually on each owner and not collectively.

  • As per the registration documents, each co-owner will have legal and equal ownership of a residential property.

  • When 2 or more parties purchase a property jointly, they are eligible to get tax deductions on the interest as well as the principal amount. According to Section 80C, each owner can avail tax deductions up to  ₹1.5 lakhs on the principal amount and up to  ₹2 lakhs on the interest amount.

  • Each buyer of the property must have legal documents mandatorily, especially PAN (Permanent Account Number).  However, the buyers do not need a TAN (Tax Deduction Account Number).

  • 1% is the rate of TDS deduction, but the rate goes up to 20% if you do not have PAN.

Conclusion

When you plan to buy an immovable asset, you must comply with all the TDS regulations. With a complete knowledge of TDS and its applicability, it will be easier for you to understand your tax obligations. Determining the actual property share of each owner becomes important to compute tax liabilities and TDS payments. 
 

Real estate is one of the top investment plans in India for long-term financial planning, and it is important that you are aware of taxation rules and regulations applicable to its sale, purchase, renting, etc.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions (FAQs)

How is the share of co-owners fixed in any joint property?

The share of co-owners will depend on the ratio of the actual amount that they have contributed towards the property costs.

What will happen if the seller does not have a PAN for the deduction of TDS on the sale of the property?

Having a PAN is mandatory. This may be taken from the seller before the sale of the property takes place.

As a buyer, do I require a TAN to deduct TDS on the sale of a property?

No, neither the seller nor the buyer needs a TAN to file TDS returns. You will need only a PAN to file TDS returns.

Disclaimer

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.