As joint owners of a flat, how do we reduce tax liability on rent?

livemint.com:

I am planning to buy a flat in NCR along with my wife as joint owner. I am funding 70% of the property, while my wife is contributing 30%. We have taken separate home loans. We intend to rent out the new flat and will have to pay tax on rent. My wife is in the 10% tax bracket and I am in the 30% tax slab. We would like to reduce our tax burden. Also, in future, can my wife increase her share in the property by paying me for that share. Should the percentage of our share be written in the sale deed. —Name withheld on request Under the provisions of the Income Tax Act, 1961, the income arising from an asset is assessable in the hands of the taxpayer who has paid for it.

Since you are contributing 70% of the funds and the balance 30% is being contributed by your wife, you can declare the rental income in both your names in the ratio of your share in the property. One should also be vary of the fact that disproportionate rental income will attract adverse implications under Section 60, which states that income will be clubbed in the hands of owner of the asset when income is transferred without transferring the asset. Income which you earn from letting out the said property shall be taxable under the head “Income from House Property".

From the rent received, a deduction of 30% of the rent received is allowed. In respect of the interest on loan taken for such let-out properties, the full interest under Section 24 can be availed as a tax exemption. Principal repayment of loans taken for the purchase of residential houses is available within the overall limit of ₹1.5 lakh under Section 80C.