Property can be bought and owned jointly by more than one person. There are some legal and financial implications in such a case that need to be taken care of so as to avoid disputes.
One of the most common reasons for owning property jointly is financial. People pool in funds to buy a property.
A common example of this is purchase of property by husband and wife. By clubbing their incomes, they are also eligible for a higher loan amount. The couple having separate sources of income may pool in their resources to buy a home.
When two or more people buy a property but do not specifically mention the share that each has in the property, a ‘tenancy-in-common’ is created. All the coowners can use the entire property and every co-owner is deemed to be having an equal share in it. After the death of one of the co-owners, the interest in the house does not pass on to the other co-owners but to the legal heir or a person named in the Will of the deceased, who will then become a ‘tenant-in-common’ with the surviving co-owners.
In case the property is owned by two or more persons in equal shares, it is referred to as a joint tenancy. In case one of the joint tenants expires, his interest automatically passes on to the surviving joint tenant(s).
In case a property is jointly owned by two or more persons, the fact should be specifically mentioned in the sale deed. A property can be acquired by two or more persons jointly by pooling in their resources. Unless there is a contract to the contrary between the parties, co-owners will have a share in the property that is proportionate to the funds contributed by them to buy it.
The names of the co-owners, along with their respective shares of joint ownership or the ownership in the property should be clearly and specifically mentioned. As such, in case of any income from the property or any gains received on the transfer of such a property, the returns can be divided in the respective proportions of ownership.
Under the Transfer of Property Act, every joint or co-owner has a proprietary right of the entire property. Accordingly, a sale has to be with the consent of all coowners involved. Only in certain cases, the co-owners get exclusive rights to certain parts of the property, which one can transfer. In case of a house, consent has to be sought from all co-owners owning the house.
A co-owner is entitled to right of possession, use and to dispose off his share in the property if it is clearly stated in the deed. In case a co-owner is deprived of his property, he has a right to be put back in possession.
It is to be noted that mere co-ownership of property without reference to any specified extent would imply that the co-owners have equal interests in the property. For any specific, pre-agreed shares, the details have to specifically be mentioned in the property documents. The sale deed can specify the shares of the coowners – the proportion of ownership among the individuals.
In case one wishes to add a co-owner at a later stage he can execute a sale deed. He can sell a portion of the property to the other person and then get the sale deed registered as a co-owner of the property by paying the necessary charges. This will entail payment of stamp duty.
Alternatively, one can execute a gift deed. He will need to make a gift deed and get it executed on a stamp paper, and register it at the registrar’s office.
In case of co-ownership, transfer of property is easy as if one of the partners die. The surviving spouse then becomes the sole owner of the house.
Both the owners can claim tax benefits. Both can claim deductions of up to Rs 1.50 lakh against the interest paid on the home loan. They can also claim tax benefits of up to Rs 1 lakh against the principal amount repaid under Section 80C.
If the property is sold, the co-owners will have to pay tax on the capital gains earned by them. Section 54F of the Income Tax Act provides that if a taxpayer invests the sale proceeds received from the sale of any capital asset in buying a residential property, the long-term capital gains on sale of the property will be exempt. In order to claim this exemption, the house should be purchased by the taxpayer. However, it does not stipulate that the house should be purchased in the name of the taxpayer only. Including the spouse’s name as co-owner will not impact the exemption granted by the Act.
Source: Times Property, The Times of India, Bangalore