Tax benefits on co-owned house hinge on actual contribution, not ownership share

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Buying a house jointly with your spouse does not necessarily mean both of you get an equal share of the tax benefits associated with a house property. A recent tax tribunal ruling shows why the actual contribution made towards buying the property matters more than simply adding a co-owner to the title document.

In Himanshu Manoranjan Bhatt v. ITO, the taxpayer had sold a residential property and earned long-term capital gains of ₹ 72.83 lakh. He then bought another flat for ₹ 1.37 crore jointly with his wife and claimed exemption on the entire capital gain under Section 82 of the Income-tax Act 2025.

Section 82 allows an individual or Hindu Undivided Family selling a qualifying residential house to save tax on the long-term capital gain by investing in another residential house. When a jointly owned property is sold, each co-owner first calculates the capital gain arising to them. The Section 82 (erstwhile Sec 54) exemption is then considered separately for each taxpayer.

Bhatt argued that he had funded the new property and his wife's name was included only for convenience. The assessing officer, however, allowed only ₹ 68.5 lakh–half the purchase price–as Bhatt's investment. Since the flat was jointly owned by the couple, the officer attributed only 50% of its cost to him. The Commissioner of Income Tax (Appeals) also upheld this view. The Mumbai Income Tax Appellate Tribunal (ITAT), however, disagreed.

The tribunal said the extent of benefit for Section 82 is based on how much Bhatt had actually invested in the new house. The payment trail showed that ₹ 1.27 crore received from selling the old property went towards buying the new flat, while the tax department had not established that his wife had contributed half its cost.

The ITAT therefore allowed exemption on Bhatt's entire capital gain of ₹ 72.83 lakh and deleted the remaining taxable gain of ₹ 4.33 lakh.

“Simply adding a spouse or family member's name to the property does not, by itself, make that person entitled to the Section 82 exemption,” says Mrugakshi Joshi, advocate at D.M. Harish & Co. LLP. Conversely, having your spouse's name on the house does not necessarily restrict your exemption to 50% either.

Section 82 allows an individual or Hindu Undivided Family selling a qualifying residential house to save tax on the long-term capital gain by investing in another residential house. When a jointly owned property is sold, each co-owner first calculates the capital gain arising to them. The Section 54 exemption is then considered separately for each taxpayer.

SR Patnaik, partner and head of taxation at Cyril Amarchand Mangaldas, says the exemption is available to the extent of the amount actually invested by each individual in the new residential property.