The Institute of Chartered Accountants of India (ICAI) has proposed introducing a joint taxation system for spouses, under which married couples could file a single income tax return by combining their incomes and applying revised tax slabs. Under such a regime, rental income from property would be taxed at the household level rather than being apportioned between spouses based on ownership ratios, as mandated under the current system. Also, even home loan interest deductions would be pooled at the household level rather than duplicated per spouse.
How joint taxation can help
Many rental properties are financed with substantial home loans, especially in the early years, when interest payments often exceed rental income, creating paper losses even as the property appreciates. Under individual taxation, these losses may go partially unused if one spouse lacks enough taxable income.
A joint taxation system would allow couples to offset such interest-heavy early losses against their combined income, making the tax treatment more reflective of the household’s actual cash flows from a leveraged property investment.
For instance, consider Rohan and Meera Sharma, a Mumbai-based couple. Rohan earns ₹32 lakh annually, while Meera earns ₹6 lakh from freelance work. They own a flat financed through a home loan and rented out to tenants. In the early years, loan interest exceeded rental income, resulting in a paper loss. Under the current individual taxation system, part of this loss remains unused due to Meera’s limited income. With joint taxation, however, the loss could be offset against their combined income, lowering the couple’s overall tax liability.
The ICAI has proposed joint taxation for spouses for the Union Budget 2026-27, suggesting an optional system in which married couples can file a single return combining their incomes under revised slabs, but the detailed rules for income treatment remain unspecified.
The current individual-centric tax structure pushes earners into higher tax brackets too early, disproportionately affecting households in which income is concentrated in one spouse despite shared financial responsibilities.
“A joint taxation framework could correct this imbalance by taxing household income more gradually, allowing lower rates to apply over wider income bands and offering meaningful relief to uneven-income families without altering peak tax rates,” says co-founder and CBO of Urban Money.
While this is just a proposal, we take a look at how this can affect income tax for couples.
Taxation on rental property
Under a joint taxation regime, rental income from property may be aggregated at the household level rather than split between spouses based on ownership ratios, as is required today.
“Rental income of either spouse would be added to the combined household income after applicable house-property deductions such as municipal taxes and the standard 30% deduction,” he says.
This approach would better reflect the economic reality of shared ownership and joint cash flows and would also simplify compliance for households that already operate financially as a single unit.
Joint filing would likely allow more efficient utilisation of rental losses and property-related expenses. At present, losses from house property are capped at ₹2 lakh per individual and often go unutilized if one spouse has limited taxable income. Under joint taxation, such losses could be set off against the combined household income, improving absorption.
“This is particularly relevant for leveraged real estate investments, where interest outgo exceeds rental income in the initial years,” he says.
This matters because many rental properties are bought with large home loans, especially in the early years of ownership. In such cases, the interest paid on the loan is often much higher than the rent the property generates, resulting in a paper loss even though the asset may be appreciating in value.
When taxation is done individually, this loss can remain partly unused if one spouse does not have enough taxable income to absorb it. Joint taxation would allow these early-stage, interest-heavy losses to be offset against the household’s combined income, aligning the tax treatment more closely with the actual cash flows of a leveraged property investment.
International experience suggests that joint assessment reduces distortions created by income splitting and allows property performance to be reported more neutrally.
Tax deductions on home loans
Home loan interest deductions would likely be pooled at the household level rather than duplicated per spouse. “For self-occupied properties, the current ₹2 lakh interest deduction would most likely apply once per household unless explicitly enhanced. For let-out properties, where interest deduction is uncapped, pooling would allow the full interest burden to be offset against combined income,” he says.
“Also, Section 80C principal deductions ( ₹1.5 lakh per person now, total ₹3 lakh) would consolidate to a household limit of ₹1.5 lakh,” an industry expert says.
Section 80C deductions, including principal repayment, would thus also logically move to a single household cap. While this may reduce duplication benefits currently available to dual-income couples, it would align deductions more closely with actual household savings and borrowing behaviour rather than tax-driven structuring.
So, joint taxation would lead to equal or more tax deductions only if the exemption limit per family is enhanced. Otherwise, it would mean lower deductions when a couple buys a house.
