Gifting Property To Your Spouse: Why It Is Allowed but Often Inadvisable | Tax News

Why Gifting Property Between Spouses Is Allowed but Often Inadvisable

As per India’s tax rules, it’s okay for a wife to gift her flat to her husband. This doesn’t cause any immediate tax implications, as gifts exchanged between spouses are not treated as taxable income for the recipient. But the couple must know a ‘clubbing provision’ that can become a problem later on.

Although gifts are okay to be exchanged between two individuals at a certain limit without any attraction of tax, which is Rs 50000 in a year, beyond which they will be treated as taxable. But there’s no restriction under the income tax law on giving property between spouses.

Unlike gifts from unrelated persons — which become taxable if they exceed Rs 50,000 in a year — spousal transfers enjoy a special exemption.

What’s Clubbing Effect?

According to an expert, as quoted by Moneycontrol, the problem lies after the gift. f the husband earns any income from the gifted property — for example, rental income or profit from selling it — such income will not be taxed in his hands. It will be under the wife’s income due to clubbing, year after year.

This rule continues to apply even if the gifted property is sold and the proceeds are reinvested elsewhere.

It’s only become complex to track such conversions for taxation purposes as the time and exchanges pile up.

The husband can sell the gifted property whenever he wishes. For tax calculation, the original purchase cost and holding period of the wife will be considered. This determines whether the sale qualifies as long-term or short-term capital gains, according to MC report.

But remember that the capital gains earned from the sale will still be clubbed with the wife’s income, not taxed separately in the husband’s hands.

While the gift itself does not trigger income tax, it does require stamp duty and registration charges. Some states offer concessional rates for gifts between spouses.