Here’s How Husband-Wife Can Split Rental Income For Tax Benefits

Bhupinder Aggarwal, a regular reader, recently posed an intriguing tax dilemma that many joint property owners might relate to. He co-owns a residential property with his wife, but the rental situation has a twist — the tenant pays rent solely to him, and the lease agreement is also registered in his name. Furthermore, the tenant deducts tax at source (TDS) under his name alone.

The question Aggarwal raised: “Since my wife and I co-own the house, can we still split the rental income for tax purposes, even though the rent and TDS are credited in my name alone?”

The short answer? Yes, rental income can — and should — be split between co-owners in proportion to their ownership share, regardless of whose name is on the rent agreement or TDS certificate.

As per Section 26 of the Income Tax Act if a property (which includes buildings and the land around them) is owned by two or more people, and each person's share is clearly defined, they will not be taxed as a group (called an "association of persons"). Instead, each person's share of the income from the property (calculated according to tax rules in sections 22 to 25) will be added to their individual income and taxed accordingly.

Section 26 of the Income Tax Act governs such cases. When a property is co-owned, the rental income is considered the collective income of all co-owners, and each is liable to report their share, even if the rent is paid to only one of them.

Although the rent and TDS are credited solely to him, both he and his wife are the rightful recipients of the rental income, as co-owners of the property. They must disclose the income in their respective Income Tax Returns (ITRs) according to their share in the property — which is usually outlined in the purchase deed or ownership agreement.

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