29. The assessee and his wife owned a joint property with a joint home loan. which is given out on rent. The assessed share of the joint loan is 40: 60. Both are earning members and income tax assesses. In fact, the assessee is paying the entire EMI. Can both claim EMI as exemption and only assessee can claim since he is paying the entire EMI? Your client seeks your advice. Advice your client appropriately with reasons.

1. Facts of the Case

• The assessee and his wife jointly own a house property.
• The house is rented out, generating rental income.
• They have a joint home loan with an agreed sharing ratio of 40:60 (Assessee:Wife).
• Both are earning members and file income tax returns.
• However, the entire EMI is being paid solely by the assessee from his bank account.
• The assessee seeks advice on whether:
  • Both co-owners can claim deduction, or
  • Only he (the EMI payer) can claim the entire deduction.

2. Issues in the Case [Questions]

1. Can both co-owners claim interest and principal deductions under Sections 24(b) and 80C, respectively?
2. Does the fact that only one party is making EMI payments affect the deduction eligibility of the other?
3. Can deduction claim differ from ownership ratio based on actual contribution?
4. How should the rental income be reported and apportioned between the co-owners?

3. Legal Principles Covered

A. Ownership and Deduction – Eligibility

• To claim interest deduction under Section 24(b) and principal deduction under Section 80C, two conditions must be fulfilled:
  1. The person must be a co-owner of the property.
  2. The person must be a co-borrower and must have actually paid the EMI.

In this case, both conditions are fulfilled only by the assessee, who is both co-owner and EMI contributor.

B. Apportionment of Income from House Property

• Under Section 26, when a property is owned by two or more persons and used for earning income, the rental income must be divided in proportion to ownership unless there is evidence of a different agreed ratio.

Since the ownership is 40:60, the rental income shall be divided accordingly.

C. Deduction Claim Linked to Actual Payment

• As per CBDT clarification and case laws (e.g., CIT v. Ram Kripal Tripathi, ITAT Mumbai Bench), tax deduction for home loan repayment can be claimed only by the person who actually makes the payment, even if both are co-borrowers.

In this case, although the wife is a co-borrower and co-owner, she is not making any EMI payment.

D. Section-wise Deductions

• Section 24(b): Deduction up to ₹2,00,000 per annum on interest for rented properties (no upper limit, full interest allowable against rental income).
• Section 80C: Deduction up to ₹1,50,000 for principal repayment (subject to overall limit of Section 80C investments).

4. Possible Judgement / Advice

Based on the facts and law:

1. Rental Income:
   • The rental income must be reported in a 40:60 ratio between assessee and wife, based on ownership share.
   • Each co-owner will add their respective share to their income under “Income from House Property”.
2. Home Loan Deductions:
   • Only the assessee (husband) can claim the entire deduction of interest under Section 24(b) and principal under Section 80C, since he is the only one making EMI payments.
   • The wife cannot claim any deduction, as she has not made any actual contribution towards repayment.
3. Documentation & Caution:
   • It is advisable to retain EMI payment proofs (bank statements) to establish that only the assessee is making the payments.
   • Future tax scrutiny may consider actual contribution over mere legal ownership.