Gifting property between spouses is allowed and enjoys certain tax exemptions, but it comes with important financial implications, especially related to clubbing of income. Today's Ask Wallet Wise query decodes factors which helps make informed decisions about property transfers within a marriage.
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I want to know if there is anything objectionable in a wife gifting her flat to her husband. Why is it considered inadvisable? It is understood that any capital gains earned by the husband consequent to the sale of that gifted flat would be calculated based on the period of holding and cost of acquisition of the original owner, i.e., the donor (wife). Also, is it correct that the capital gains accrued to the donee (husband) on the sale will be clubbed with the income of the donor (wife)? Will the husband be free to sell the gifted flat at a time of his choosing, or will it attract any restrictions?
Expert Advice: There are no provisions under the Income Tax Act prohibiting a spouse from gifting to another. On the contrary, transactions of gifts between spouses are given favorable treatment at the time of receipt, as such gifts are not treated as income of the recipient unlike gifts received from unrelated persons, where such gifts are treated as income if the aggregate amount exceeds Rs 50,000 in a year.
However, gifting is not advisable because of the clubbing provisions, where the income arising to the spouse from such gifted assets is required to be taxed in the hands of the spouse making the gift. The clubbing provisions apply year after year, even if the gifted asset is converted into another asset. This poses a problem in tracking the movement of funds converted from time to time for the purpose of clubbing.
Your wife can gift her house without any immediate tax implication, and there are no restrictions on you selling the property immediately after that. The holding period during which the house was held by your wife is added to your holding period to determine whether the asset sold was a long-term capital asset or not. Your wife will have to pay stamp duty and registration charges for the gift transaction. Some states levy concessional stamp duty rates on such transactions between spouses.
The clubbing provisions will apply to the income generated from the asset transferred, and not to income generated from investments made from income already subject to clubbing.
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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