Why Joint Taxation Is Back on the Union Budget 2026 Agenda

New Delhi | January 26, 2026:

India’s income-tax structure is based on the principle of individual taxation. Every taxpayer is assessed separately, with exemption limits, deductions, and liabilities. Although most Indian families combine incomes, share expenses, and plan finances jointly, spouses are required to file separate income tax returns.

The Institute of Chartered Accountants of India (ICAI) has suggested introducing a joint taxation for married couples, under which partners could optionally file a single income tax return by combining their incomes. The proposal, submitted for consideration in the Union Budget 2026–27, is part of a broader set of Union Budget 2026 income tax proposals aimed at aligning tax policy with household-level financial realities.

While the suggestion is still at an early stage and detailed rules are still to be specified, it has caused debate, especially around how it could affect taxation of rental income, home loans, and deductions.

1. Why ICAI is pushing for joint taxation

India’s individual-centric tax system often rewards families where income is centred in one spouse, even though financial responsibilities are shared.

Under the current system, a high-earning spouse can be pushed into higher tax slabs quickly, while deductions or losses linked to jointly owned assets may go partially unused if the other spouse has limited taxable income.

2. Rental properties

One of the strongest areas where joint taxation for married couples could help is rental property income, especially properties financed through home loans.

In the early years of a loan, interest payments are often significantly higher than the rental income generated. This results in a “paper loss”, a loss on tax documentation even if the property is appreciating in value.

Under the current regime, rental income and losses must be apportioned between spouses strictly based on ownership ratios. Losses from house property are capped at ₹2 lakh per individual per year, and any excess can only be carried forward. If one spouse does not have enough taxable income, part of the loss may remain unused.

Also Read: Smart Tax Strategies for Property Investors to Maximize Returns

A real-world example

Consider Rahul and Rashi Sharma, a couple based out of Mumbai. Rahul earns ₹32 lakh annually from his job, while Rashi earns ₹6 lakh through freelance work. They jointly own a rented flat financed by a home loan.

In the early years, the interest on the loan exceeds the rental income, creating a tax loss. Under individual taxation, Rashi cannot fully use her share of the loss because her income is limited. As a result, part of the tax benefit is wasted.

Under joint taxation, Rahul and Rashi could offset the entire rental loss against their combined income, reducing the household’s overall tax liability. This better reflects their real cash flows from the property.

How rental income can be considered under joint filing

When joint taxation for married couples is introduced, rental income would likely be aggregated at the household scale instead of being split based on ownership shares.

After adjusting for municipal taxes and the standard 30% deduction for house property, the net rental income or loss would be added to the couple’s combined income. This would simplify compliance and improve the absorption of losses.

3. Home loan interest deductions

Currently, each spouse can claim up to ₹2 lakh in interest deduction for a self-occupied property, subject to ownership and loan conditions. Under joint taxation, this benefit is likely to apply only once per household, unless the limit is specifically increased.

For rental properties, where interest deduction is currently unlimited, combining would allow the full interest burden to be set off against the combined household income, an advantage for heavily financed investments.

Read More: Home Loan Verification Process

What about Section 80C deductions?

Deductions under Section 80C, including principal repayment of home loans, would logically move to a single household cap under joint taxation.

While this could reduce tax-saving opportunities created purely through ownership structuring, it would align deductions more closely with actual household savings and borrowing behaviour rather than tax optimisation. The proposal has become part of ongoing discussions around the Union Budget 2026 income tax proposals.

Joint taxation could be particularly beneficial for:

• Single high-income households
• Couples with uneven income distribution
• Families with large home loans and rental properties
• Households facing unused property losses under the current system

However, unless exemption limits and deduction limits are raised at the family level, some couples, especially those with similar income levels, could see lower total deductions than under the current system.

Final Thoughts

For now the government hasn’t indicated if it plans to adopt the idea or how it would structure revised slabs and deduction limits.

Still, the discussion reflects an essential change in how policymakers are thinking about taxation, not as a collection of individuals, but as households with shared financial realities.

If implemented properly, joint taxation could make India’s income-tax system more fair, efficient, and reflective of modern family finances. Whether joint taxation finds a place among the final Union Budget 2026 income tax proposals remains to be seen.