Property Co-ownership Provisions for Rental Income: Section 26 of Income Tax Act, 1961 and Clause 24 of Income Tax Bill, 2025

Clause 24 Property owned by co-owners.

Income Tax Bill, 2025

1. Introduction

This analysis examines the evolution of provisions relating to the taxation of income from properties owned by co-owners, comparing Section 26 of the Income Tax Act, 1961 with Clause 24 of the proposed Income Tax Bill, 2025. The provisions are fundamental to determining how co-owned properties are taxed and how the income is allocated among co-owners.

2. Objective and Purpose

• Both provisions aim to:
• Establish clear guidelines for taxing income from co-owned properties
• Prevent double taxation
• Ensure fair distribution of tax liability among co-owners
• Provide clarity on the treatment of co-owners vis-`a-vis association of persons

3. Detailed Analysis

3.1 Structural Changes

The new Clause 24 has been restructured into two distinct sub-clauses, making it more organized and easier to comprehend compared to Section 26. While the essence remains similar, the language has been simplified and modernized.

3.2 Scope of Application

Section 26 (Current Act):

• Specifically mentions "property consisting of buildings or buildings and lands appurtenant thereto"
• Focuses on physical property structure

Clause 24 (New Bill):

Uses broader term "property" without specific reference to buildings or appurtenant lands

Adopts a more inclusive approach to property types

3.3 Key Components Analysis

1. Co-ownership Criterion: Both provisions maintain the fundamental requirement of:

• Multiple owners
• Definite and ascertainable shares

2. Assessment Approach:

• Both provisions explicitly exclude assessment as an association of persons
• Individual assessment principle is retained

3. Income Computation:

Section 26:

• References Sections 22 to 25 for income computation
• More specific in cross-referencing

Clause 24:

• Simplified reference to "this Chapter"
• More flexible approach to income computation

3.4 Relief Provisions against Self Occupied Property.

Section 26 (Explanation):

• References sub-section (2) of section 23
• Complex language in explaining relief application

Clause 24(2):

• Direct reference to section 21(6)  
• Clearer language regarding individual entitlement to relief

4. Practical Implications

4.1 For Taxpayers:

• Simplified understanding of their tax obligations
• Clearer determination of individual shares
• More straightforward relief calculation

4.2 For Tax Administrators:

• Streamlined assessment process
• Reduced ambiguity in interpretation
• More efficient tax collection mechanism

5. Comparative Analysis

5.1 Improvements in New Provision:

1. Simplified language
2. Better structured format
3. Broader property coverage
4. More direct relief provisions

5.2 Retained Elements:

1. Basic principle of separate assessment
2. Requirement of definite shares
3. Individual taxation approach

6. Conclusion

Clause 24 of the Income Tax Bill, 2025, represents a modernized and simplified version of Section 26 of the Income Tax Act, 1961. While maintaining the core principles, it introduces clearer language and structure, potentially leading to better compliance and easier administration.

 

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Full Text:

Clause 24 Property owned by co-owners.

 

Dated: 28-2-2025