Here’s something nobody tells you at the registration office.
That property deed with both your names on it? The one that made you feel so secure?
It might be a ticking tax bomb.
And the timer started the moment you signed those papers.
I know what you’re thinking. “But we did everything right. Both my wife’s and my names are on the documents.”
That’s exactly what thousands of property buyers thought too.
Until the tax notice arrived.
Because here’s the uncomfortable truth: The Income Tax Department doesn’t care what your sale deed says.
They care about who actually paid for the property.
And that’s where the complications begin.
The Ownership vs. Contribution Dilemma
Consider the case of Rajesh and Priya, who bought a flat in New Town, Kolkata, for ₹80 lakh. Both names appeared on the documents as joint owners.
However, Rajesh paid the entire amount. Priya, being a homemaker, had no independent income or contribution to the purchase.
They rented it out for ₹30,000 a month and expected to split the tax liability equally.
Tax time arrived. And a surprise came with it.
The tax officer clubbed the entire rental income under Rajesh’s name.
The reason: Priya’s contribution to the property cost was zero. Her name on the deed, while legally valid, held no weight for tax purposes.
This is the clubbing provision in action. It applies when one spouse has no independent income but appears as a co-owner on property purchased entirely by the other spouse.
When Both Parties Contribute: The Proof Problem
The situation becomes more complex when both co-owners actually contribute to the property purchase.
Take Amit and Sneha, both working professionals who bought a property together.
Amit contributed ₹40 lakh. Sneha contributed ₹20 lakh.
Their sale deed mentioned them as “joint owners” without specifying the ownership ratio.
They filed separate returns, claiming 50% of the rental income each.
Two years later, a tax notice arrived.
The department’s demand, “Prove your contribution ratio.”
They needed bank statements from 2021, home loan documents, transfer receipts, and proof of down payment.
The challenge wasn’t just finding the documents. It was establishing a clear money trail that matched their claimed ownership ratio.
The Delhi Income Tax Appellate Tribunal (ITAT) recently stated that if the purchase agreement does not specify the percentage of ownership of husband and wife, both must be treated as equal owners of the property for taxation purposes.
The TDS Complication on Property Sale
Section 194-IA of the Income Tax Act mandates that buyers deduct 1% TDS when purchasing property above ₹50 lakh.
However, the threshold applies to each owner’s share individually, not the total property value.
If your share is ₹45 lakh and your co-owner’s share is also ₹45 lakh, technically, no TDS should be deducted, despite the total value being ₹90 lakh.
The problem? Most buyers don’t understand this provision.
They see ₹90 lakh and deduct TDS on the full amount.
Consequently, you must file for a refund, wait for months, and potentially engage with the tax department to recover what should never have been deducted in the first place.
The Notional Rent Provision
The Income Tax law permits claiming only two properties as self-occupied, even if you own multiple properties jointly.
These additional properties are treated as “deemed to be let out.”
The notional rent is then apportioned based on the ownership ratio, which may differ from what’s stated in your sale deed if actual contribution ratios weren’t documented.
If a registered sale deed does not specify the extent of holding in the property, both the husband and the wife would be understood to have an equal share in the rental income and would be taxed accordingly, the Delhi Bench of the Income Tax Tribunal said in an order dated January 5, 2023.
Capital Gains and Separate Exemptions
When selling jointly owned property, the tax calculation follows specific rules.
The law requires apportionment at the “sale consideration” and “cost of acquisition” level, not at the “net taxable capital gains” level.
This means each co-owner can claim separate exemptions under Section 54EC, up to ₹50 lakh each.
(In 2018, the Delhi bench of the Income Tax Tribunal ruled that joint buyers will not be liable to pay any TDS under Section 194 1A if the share of the individual is less than Rs 50 lakhs.)
This provision is actually beneficial, provided you’re aware of it.
Inherited Property Complications
Properties inherited jointly by multiple siblings present additional challenges.
Consider four brothers who inherit their father’s property without a will. Under succession laws, they receive equal shares.
They rent it out for ₹1 lakh per month.
For tax purposes, each brother must report ₹25,000 as rental income.
Under Section 26 of the Income Tax Act, each co-owner is taxed on their share of ownership. The ownership share can be based on what is mentioned in the will, sale deed, or other legal documentation. If no share is specified, income is split equally.
However, if one brother lives abroad or another fails to report the income, discrepancies arise in tax records.
The situation worsens if one brother informally relinquished his share. Without proper legal documentation, the tax department won’t recognize such arrangements.
Verbal agreements and WhatsApp messages hold no weight in tax proceedings.
When Relationships Sour
Perhaps the most challenging scenario isn’t dealing with the tax department at all.
It’s when relationships between co-owners break down.
Business partners who no longer speak. Siblings involved in family disputes. Former spouses still listed on property deeds.
When the property generates income, questions arise: Who reports it? Who pays the tax?
If one person pays all taxes and claims all deductions while the other reports nothing, both parties receive tax notices.
What starts as a property investment becomes years of litigation.
The Documentation Gap
Where are your property purchase receipts from five or ten years ago?
Are your home loan statements showing individual contributions? Bank transfers proving your payment ratio?
Most people can’t locate these documents.
Yet the tax department may request them years after the purchase.
Without proper documentation, the tax officer is forced to make assumptions. These assumptions usually increase your tax liability.
Practical Steps Forward
Joint property ownership isn’t inherently problematic.
It’s complex in ways that few people explain upfront.
Registration clerks don’t mention these issues. Property dealers rarely discuss them. Even lawyers sometimes overlook the tax implications.
However, joint property ownership offers genuine benefits. Tax advantages exist. Succession becomes more straightforward.
But you must understand the implications.
Maintain comprehensive documentation for every contribution, bank transfer, and loan repayment.
Specify ownership ratios explicitly in the sale deed.
File taxes accurately from the beginning. Don’t wait for notices to arrive.
Consult a chartered accountant who specializes in joint property taxation. Such expertise is valuable but not always easy to find.
Most importantly, understand that adding a name to a property deed is simple.
Managing the tax implications over the next decade is considerably more complex.
