TDS rules on the sale of jointly owned property

What is a Jointly Owned Property?

Jointly owned property can be any property held under the name of two or more parties. The two parties can be related in any way. For instance, they can be business partners, blood-related partners, or any other combination that justifies the reason to own a joint property. When a husband and a wife own a property together, the ownership of the assets comes under marital status.

The joint-owned property undergoes several legalities, such as joint tenancy, community property, or held in trust. In joint ownership, all the property holders have equal obligations and rights to the property until death. In this case, all the parties related to the property ownership complied with the TDS (Tax Deducted at Source) rules and are also advised to keep an eye on the TDS deduction rules.

Confused About TDS in a Joint Property Deal? Let’s Clarify

It is very natural to be confused about TDS on purchase of property in case of joint property deal. The rules differ depending on whether there are joint sellers, joint buyers, or both. Let us break it down clearly so that both parties understand their responsibilities.

Under Section 194-IA of the Income Tax Act, a buyer is required to deduct TDS at the rate of 1% on the purchase of an immovable property if the transaction value is ₹50 lakhs or more. This obligation sits with the buyer, not the seller. Now, when there are multiple buyers or multiple sellers, the calculation of TDS changes slightly, which is where most of the confusion begins.

The key things to keep in mind are:

• TDS is deducted on the total sale consideration, not just the profit
• The threshold of ₹50 lakhs applies per property, not per buyer or seller
• Each buyer in a joint purchase must deduct TDS on their share of the payment
• The TDS return filing must be completed by the buyer using Form 26QB

How Can the Share of Each Co-Owner Be Verified?

The share of each co-owner in a property or business can be ascertained through various methods, depending on the specific context and agreements between the co-owners.

Here are a few common approaches:

Taxation of Rent Received for Co-Owned Property

According to the Income Tax Act (ITA), if the property is rented out, the owner is required to pay tax on the rent received. Additionally, if the property was acquired through the use of a mortgage, the owner may deduct the interest on TDS paid on the rental property. The loss from the house property, however, is limited to ₹2 lakhs per fiscal year and cannot be offset by any other income.

However, if the property has co-owners, the rental income from that home will be split up according to the co-owners’ shares, and each co-owner must report their share of rental income while filing their income tax return. The amount of tax payable will depend on the co-owners’ income tax slabs and the period of ownership of the property.

Assesse Liable to Equal Tax on Income from House Property Where Joint Owner’s Shares are not Mentioned in the Sale Deed

As per the Delhi branch of the income tax tribunal, if two people own a house together and the sale deed does not specify how much of the house each person owns, then they will both be considered to own 50% of the house for tax purposes. This means that they will both be liable to pay tax on 50% of the income that the house generates, such as rent or Airbnb income.

This is because the ITA states that “where the shares of the co-owners in a property are not specified in the sale deed, they shall be deemed to be equal.” This means that the ITA assumes that each co-owner owns an equivalent share of the property unless there is evidence to the contrary.

TDS on the Sale of Property in Case of Joint Sellers

If you are buying from joint sellers, you must deduct TDS for each seller individually. If you pay a lump sum to one seller’s account, the other seller will face a mismatch on their tax credit profile. Always write separate cheques or make separate online transfers corresponding to their exact shares when you deduct TDS on sale of property in case of joint sellers.

Taxation of Profit on Sale of the Jointly Owned Property

When a jointly owned property is sold, each co-owner is liable to pay tax on their share of the capital gains. The amount of tax payable will depend on the co-owners’ income tax slab and the period of ownership of the property. Here are some of the tax exemptions available on capital gains earned from jointly owned property:

Section 54EC

Section 54EC, now replaced with Section 85 of the Income Tax Act, 2025, allows an exemption of up to ₹50 lakhs from long-term capital gains on the sale of a residential property if the amount is financed in another residential property within 2 years of the sale.

Section 54F

Section 54F (now changed to Section 86 of the Income Tax Act, 2025) permits an exemption of up to ₹2 lakhs from long-term capital gains on the sale of a residential property if the amount is invested in a National Pension System (NPS) account within 60 days of the sale, which is also considered a popular National Retirement Plan for long-term financial security.

Section 54GB

This section allows an exemption of up to ₹1 crore from long-term capital gains on the sale of a residential property if the amount is invested in a specified infrastructure project within 3 years of the sale.

The co-owner must ensure that they meet all the conditions of the exemption before claiming it. The co-owner should also consult with a tax advisor to determine which exemption is most suitable for their situation.

TDS on Sale of Property in Case of Joint Owners

When a property is sold, the buyer is required to deduct TDS from the total consideration paid to the seller. In the context of joint owners selling a property, the TDS liability is typically divided among the co-owners in proportion to their ownership share. Each co-owner is responsible for paying taxes on their respective share of the capital gains arising from the sale.

The buyer is required to deduct TDS on property at the prevailing rate (which may vary depending on factors such as the type of property and the total consideration) on the entire sale consideration. However, the responsibility of determining the actual capital gains and computing the tax liability lies with the individual co-owners.

TDS Rules on Sale of Jointly Owned Property

Taxation, being a crucial concept, needs to be followed with utmost seriousness. Before paying taxes, everyone must focus on all TDS rules and the gradual revision.

Below mentioned are a few of the TDS rules focusing on the deduction, TDS amount, and TDS exemption limit:

• According to the joint party’s new TDS rules, income tax is not levied as a group but on respective co-owners individually.
• Both partners hold legal and equal ownership of the house property, as mentioned in the registered documents.
• When two or more parties join together for joint property ownership, they are considered eligible for TDS deductions on the principal and interest amounts. As per section 80C (Now re-numbered to Section 123 as per the Income Tax Act, 2025) of the Income Tax Act, the co-owners become eligible to avail of a benefit of ₹1.5 lakhs per person annually on the principal amount and up to ₹2 lakhs on the interest.
• To deposit the TDS, each buyer has to own the legal documents, especially the Permanent Account Number (PAN). However, the buyer is not required to own a Tax Deduction Account Number (TAN).
• TDS is deducted at a 1% rate, but if the seller does not have a PAN, the deduction rate goes up to 20%.

Conclusion

When purchasing immovable properties in joint names, it is essential to consider compliance with TDS rules. By understanding the concept of TDS and its various applications, individuals can ensure a smooth succession of property funding while fulfilling their tax obligations. Determining the share of co-owners in the property is crucial, as it affects the distribution of TDS payments and tax liabilities. Staying updated with revised TDS rules, knowing how to pay TDS online, and consulting with a tax advisor can provide valuable insights into optimizing tax liabilities and availing exemptions. Adhering to TDS regulations is not only a legal requirement but also contributes to a fair and transparent tax system, benefiting both individuals and the government in the long run.

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