Buying property in wife’s name: Tax implications and clubbing rules explained

Tax rules: Buying property in wife's name

I am planning to buy a property in the name of my wife since stamp duty and registration fee is 1 percent lower for women in Maharashtra but the issue is that my wife is not an earning member and not an income tax payer. The entire payment will be done from my earnings through joint holding account. What will be the tax implication for my wife? Will she be required to show the income and file ITR?  What will, be capital gains tax treatment if we sell the property later on sometime after taking the possession? What will be the tax implication for wife for the rental income if we give the property on rent? 

Expert's view: Since you will be making whole of the payment for buying the property in your wife’s name, the amount paid by you will be treated as gift made by you to your wife.

As per the present scheme of taxation in case aggregate value of the gifts received by a recipient during one financial year from all the sources exceeds Rs 50,000 whole of the amount is treated as income of the recipient and taxed at the slab rate applicable. This rule of taxing gifts in the hands of recipient has some exceptions. One of the exception is gifts received from specified relatives including one’s spouse.

So your wife will not have any tax liability in respect of contribution made for buying the property in her name and treated as gift in her hands. However, clubbing provisions under Section 64 will trigger and any income arising to your wife from the assets gifted or acquired from the gifted assets will be taxed in your hands.

In case you let out the property, the rental income will get clubbed and become taxable in your hands. In case the property is self-occupied no clubbing provisions will apply as the self-occupied property does not generate any income and clubbing provisions will not apply. As and when the flat is sold, the capital gains will also be subject to clubbing provisions and will get clubbed with your income.

Please note that the clubbing provisions will continue to apply till the marriage lasts even if the asset changes it form and is converted into any other asset. The clubbing is restricted to the income earned on the asset/money gifted and not on the income earned on the investments made from income already clubbed earlier.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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