That can create a tax complication when the property is eventually sold. How should the capital gains and related tax exemptions be divided when ownership is joint but the financial contributions are not?
A recent ruling by the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) offers clarity for co-owners and married taxpayers. The tribunal emphasised that tax treatment need not be determined solely by the names appearing on the title deed. Instead, the actual financial contribution and underlying economic interest in the property can be relevant when determining the tax liability and eligibility for exemptions such as those available under Section 54. This means that, in certain circumstances, tax benefits may instead be considered in proportion to the spouses’ actual contributions and underlying economic interests in the property.
If the property is rented out, rental income can generally be apportioned according to the spouses’ respective ownership shares, subject to the applicable tax rules. This can potentially allow the income to be taxed separately in each spouse’s hands, depending on their individual tax positions, say experts.
When the property is subsequently sold, the Mumbai ITAT ruling indicates that, in the circumstances of the case, the Section 54 exemption may be considered in proportion to each spouse’s actual financial contribution, rather than assuming an equal 50:50 share. In this case, that would mean considering the wife’s ₹1.76-crore contribution and the husband’s ₹55-lakh contribution separately.
“This approach secures fairness, strengthens equity protection, and avoids disputes. Beyond tax savings, joint ownership also provides succession benefits, ensuring a smoother transfer of rights post‑death. Couples should therefore view joint property not only as a family asset but as a structured tax‑planning instrument that balances compliance, savings, and long‑term security,” said Vivek Jalan, Partner, Tax Connect Advisory Services LLP, a PAN India multi-disciplinary Tax Consulting Firm.
Suresh Sadgopan, founder of Ladder7 Financial Advisories, said this sets a precedent for couples to claim capital gains based on their respective contributions. They should keep clear accounts of how much each paid, as the capital gains attribution to each partner would be based on that.
“But this is from the income tax point of view, not necessarily from the property ownership and inheritance viewpoint,” he said.
As observed in the Mumbai ITAT ruling in Tejal Kaushal Shah v. ITO, in the context of joint property ownership, tax benefits/exemptions should be determined by actual economic ownership and financial contribution rather than merely by the names appearing on title documents, concurs Amarpal Chadha, Tax Partner, EY India. “Couples investing in a joint property should ensure that their respective contributions, ownership interests and funding arrangements are clearly documented from the outset and consistently reflected in their income tax returns. Maintaining adequate records such as bank statements, loan repayment details and purchase documents is critical in substantiating future exemption claims and defending tax positions during scrutiny assessments, "advises Chadha.
This decision also highlights that tax benefits, including exemptions under Section 54 of the erstwhile Income Tax Act, 1961 (Section 82 of Income Tax Act, 2025), should be claimed in proportion to each co-owner's investment in the property, reinforcing the need for alignment between legal ownership, beneficial ownership and tax reporting, he added.
Tax benefits may reflect actual contributions: If you and your spouse jointly purchase or reinvest in a property, the Section 54 exemption may, in certain circumstances, be considered in line with each person’s actual financial contribution, rather than automatically being split 50:50.
Joint ownership does not always mean equal financial ownership: A spouse may be named on the property documents for reasons such as security, succession planning or convenience, even if they contributed less towards the purchase. The tax treatment can take the underlying financial arrangement into account.
Keep a clear paper trail: Documentation becomes important when ownership and financial contributions differ. Maintain bank statements, loan records, EMI payments and details of how the purchase and sale proceeds were funded, and ensure these are consistent with the positions taken in tax filings.
Vandana Ramnani leads the real estate vertical at Hindustan Times Digital, bringing over two decades of journalism experience across real estate, education, human resources, and foreign affairs. She specialises in India’s real estate sector, covering residential and commercial markets in Delhi-NCR, Mumbai, and Bengaluru, with in-depth reporting on regulatory developments, urban policy, housing trends, and interviews with industry leaders. Her work has also appeared in the Hindustan Times newspaper and HT Estates. Earlier, Vandana played a key role in establishing the real estate vertical at Moneycontrol (NW18 Group), shaping its editorial direction and market coverage. She has also written extensively on international education for HT Education, tracking global study destinations, policy changes, and student mobility trends, earning the Singapore Education Award 2009 for Best Media Coverage (Print). Her reporting portfolio includes human resources and employment trends for HT ShineJobs and PowerJobs, as well as lifestyle and interior design features for HT Premium Homes. Vandana began her career with the Press Trust of India, gaining strong editorial and reporting expertise. She was also selected for a prestigious fellowship at Fondation Journalistes en Europe in Paris, where she wrote for EuroMag. One of her notable reporting assignments included covering Germany’s capital relocation from Bonn to Berlin. Outside of journalism, Vandana is a passionate traveller, constantly seeking out charming hideaways across India and the lesser-known, offbeat corners of Southeast Asia.Read More
