Joint Tax Filing for Couples May Reshape Home Loan and Rental Tax Rules in Budget 2026

The Institute of Chartered Accountants of India (ICAI) has proposed an optional joint tax filing system for married couples in the Budget 2026. The move could allow spouses to combine incomes, pool rental income, and consolidate home loan interest deductions at the household level instead of taxing them individually. Experts say joint taxation may improve utilisation of rental losses, reduce tax inefficiencies for uneven-income families, and better reflect real household cash flows, especially for leveraged property investments. However, its impact will depend on revised tax slabs, enhanced deduction limits, and whether the system remains optional.

If introduced, joint taxation would allow spouses to file a single income tax return, combine their earnings, and pool property-related deductions at the household level instead of splitting them between individuals. For families with uneven incomes or leveraged real estate investments, this could lead to more equitable taxation and better use of deductions.

What Is ICAI Proposing Under Budget 2026?

ICAI has suggested an optional joint taxation system for spouses starting from the Union Budget 2026–27. Under this framework:

• Married couples could combine their incomes
• File one consolidated tax return
• Be taxed under revised household-level slabs
• Pool rental income and home loan deductions

While detailed rules are yet to be outlined, the intent is to move away from India’s strictly individual-centric tax system, which often fails to capture how households actually manage finances, particularly housing loans and rental assets.

Also Read: What Real Estate Stakeholders Expect from Budget 2026

Why Is Joint Tax Filing for Couples Being Considered?

Does the Current Tax System Penalise Certain Families?

India’s tax regime assumes individuals operate financially in isolation. In reality, most married households:

• Share home loans
• Co-own property
• Pool expenses
• Depend on a single dominant income in many cases

Yet, under the current system:

• Each spouse is taxed separately
• Rental income must be split based on ownership ratios
• Property losses are capped per individual
• Deductions often remain partially unused

This structure disproportionately affects households where income is concentrated in one spouse, pushing them into higher tax slabs despite shared financial responsibility.

How Can Joint Tax Filing Help Homeowners?

Why Do Rental Properties Create Tax Inefficiencies?

Many rental homes in urban India are bought using large home loans. In the initial years:

• Interest outgo is high
• Rental income is relatively modest
• This leads to paper losses under “Income from House Property”

Under individual taxation, these losses are allocated between spouses and may remain unabsorbed if one spouse earns less.

Real-Life Example: How Joint Tax Filing Changes Outcomes

Scenario

• Rohan earns ₹32 lakh annually
• Meera earns ₹6 lakh from freelance work
• They jointly own a rented flat in Mumbai
• Home loan interest exceeds rental income in early years

Under the Current System:

• Loss is split between both
• Meera cannot fully utilise her share
• The tax benefit is partially wasted

Under Joint Tax Filing for Couples:

• Rental income and losses are pooled
• The entire loss is set off against the combined income
• Household tax liability reduces

This approach aligns taxation with actual household cash flows, especially for leveraged real estate investments.

How Would Rental Income Be Taxed Under Joint Filing?

Would Ownership Ratios Still Matter?

Likely no.

Under joint taxation:

• Rental income from property would be aggregated at the household level
• Standard deductions (30%), municipal taxes, and interest deductions would apply once
• Income would be taxed under revised household slabs

According to tax experts, this system:

• Reflects the economic reality of shared ownership
• Simplifies compliance
• Reduces disputes over ownership structuring

What Happens to Losses From House Property?

Currently:

• Loss set-off is capped at ₹2 lakh per individual
• Losses often remain unused if one spouse has la imited income

With joint tax filing for couples:

• Losses could be adjusted against the combined household income
• Improves utilisation of interest-heavy early losses
• Especially relevant for rental properties with high leverage

This change could significantly benefit middle-class and upper-middle-class families investing in housing.

How Will Home Loan Deductions Be Treated?

Section 24(b): Interest Deduction

• Self-occupied property: Likely capped at ₹2 lakh per household (unless enhanced)
• Let-out property: Interest deduction remains uncapped, but pooled

Pooling would allow households to fully absorb high interest outgo against total income.

Section 80C: Principal Repayment

Currently:

• ₹1.5 lakh per individual
• Dual-income couples can claim up to ₹3 lakh

Proposed structure:

• Single household cap of ₹1.5 lakh

This would eliminate duplication benefits but align deductions with actual household borrowing, not tax-driven structuring.

Will Joint Tax Filing Always Reduce Taxes?

Who Benefits the Most?

Joint tax filing for couples is most beneficial when:

• Income is unevenly distributed
• Rental losses are significant
• One spouse cannot fully use deductions

It may be neutral or less beneficial when:

• Both spouses earn similar incomes
• Existing individual caps are already fully utilised

Experts emphasise that the success of this reform depends on revised slabs and enhanced household deduction limits.

What Can India Learn From Global Tax Systems?

Countries such as:

• The United States
• Germany
• France

Allow joint assessment or income splitting for married couples. Studies show such systems:

• Reduce income distortion
• Improve tax fairness
• Better reflect household economics

ICAI’s proposal brings India closer to these global practices.

Also Read: Budget 2026: Homebuyers Seek Price Caps, Penalties for Project Delays

Will Joint Tax Filing Simplify Compliance?

Yes. Potential benefits include:

• Fewer returns to file
• Simpler reporting of jointly owned assets
• Reduced litigation over ownership ratios
• Better alignment with joint loans and bank accounts

For tax administration, this could also mean cleaner reporting and fewer disputes.

What Are the Key Concerns Policymakers Must Address?

Before implementation, Budget 2026 must clarify:

• Whether joint filing is optional (critical)
• Revised household tax slabs
• Enhanced deduction limits
• Safeguards for women’s financial independence
• Treatment of losses and carry-forwards

Without these, the proposal risks uneven outcomes.

Conclusion

Joint tax filing for couples represents a structural rethink of India’s tax philosophy from individuals to households. For real estate-owning families, it could improve deduction efficiency, reduce tax leakage, and align taxation with real cash flows.

If designed carefully, with optional adoption and fair household limits, this reform could:

• Improve tax equity
• Support housing affordability
• Simplify compliance
• Strengthen middle-class finances

Budget 2026 will determine whether this idea becomes a meaningful reform or remains a policy discussion.