Income Tax regulations concerning properties acquired in the name of a spouse indicate that tax obligations arise when a property is sold at a profit or when it is leased to a tenant. To mitigate these tax responsibilities, many individuals opt to purchase real estate in their spouse’s name.
However, this strategy does not yield the intended tax benefits according to existing regulations. Transferring funds to a spouse’s bank account for the purpose of acquiring a property in her name does not exempt the husband from capital gains tax liabilities that may arise upon the sale of the property, nor does it relieve him of tax obligations on income generated from renting it out.
Similarly, transferring ownership of the property to a spouse does not eliminate tax liabilities. This can be illustrated through two scenarios:
Firstly, when a property is transferred to a spouse without any consideration:
In instances where an individual conveys a property to their spouse without receiving adequate compensation, the individual is still considered the owner of the property under Income Tax regulations.
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“According to Section 27 of the Income Tax Act, an individual who transfers any property to their spouse without sufficient consideration is deemed to retain ownership of that property. Consequently, any rental income or capital gains generated from the property will be taxed in the hands of the deemed owner,” informs CA (Dr.) Suresh Surana.
Thus, any rental income or capital gains arising from such property will be subject to taxation for the individual deemed to be the owner.
Furthermore, consider a scenario where an individual deposits funds into his wife’s account, which are then utilized to purchase a flat in her name, with all payments made from her account.
In this instance, experts assert that the transaction involves the transfer of money rather than the property itself. Consequently, the clubbing provisions outlined in Section 64 of the Income Tax Act would apply.
Any income derived from the sale or rental of this property would be taxable in the husband’s name. In this situation, since the transfer pertains to money rather than real estate, the clubbing provisions under Section 64 are relevant,
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