Clubbing income tax with spouse

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 March 2012 Dear Experts,

My wife is a house wife (has never had to file a tax return). I bought a residential site property, registered in my my wife’s name. The entire funds for the purchase of the property was made out of my account (joint account with my wife), as a gift to her.

Based on my understanding of rules on Clubbing Income Tax with Spouse - "Income that arises from any assets which have been gifted to one's spouse is clubbed with the income of the person making the gift", in whose hands will capital gain arising from sale of the property be taxed, myself or my wife?

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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13 March 2012 In this case, clubbing shall NOT apply. This is because you have transferred a HOUSE PROPERTY.

In this case, Section 27 shall apply and you will be treated as the DEEMED OWNER of the house property.

Income (rental as well as capital gain on sale of asset) from such house property shall be included in YOUR total income.

Querist : Anonymous

Querist : Anonymous (Querist)

13 March 2012
Dear Sir,

I thank you for addressing my question.

I have come across a differing view of the case in question, as below. May be I have not understood it fully. I would kindly request your further counsel on it:

"If an individual transfers a house property to his or her spouse (except in
connection with an agreement to live apart) or to a minor child (except a
married daughter) without adequate consideration, he is deemed as the
owner of the property for tax purposes. However, if an individual transfers
cash to his or her spouse or minor child, and the transferee acquires a
house property out of the gifted amount, the transferor shall not be treated
as the deemed owner of the house property".

In my case, the following are true:
1) I did not transfer the property (residential site). It was transferred from the Seller and registered in my wife's name.
2) The payment for the purchase of the property was made from my bank account. (The account has my wife as joint holder).
3) I did not transfer any cash to my wife at any time before or after the purchase of the property.
4) I did not write any document to state that payment I made for the purchase of the property is my gift to her.

I am really unsure how the IT authority will deal an IT return from me for the capital gain on the sale of the property, on the basis I have taken that I am the 'Deemed Owner'.
What supporting document or explanation should I attach to my IT return?

Or, do you think based on the above facts, IT authority will expect or ask me that my wife should file the return as in their view, she is the 'Deemed Owner' of the property.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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14 March 2012 Ok. Now that the facts of the case are clear, it is understood that you did not transfer the asset but purchased the asset in the name of the wife by making payment from your account.

Either ways, the capital gain is taxable in your hands.

The Income Tax department normally does not question the capital gain disclosed by the assessees, unless it feels that the sale consideration is grossly understated.

Even if it questions you on the acquisition, you can substantiate the same from your bank statement.

SO, you can file a return showing capital gain.

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Querist : Anonymous

Querist : Anonymous (Querist)

02 April 2012 Dear Sir,

The residential house that my wife bought in 1980 costed Rs. 5 lakhs. She expects to sell it for 1 cr 92 lakhs. If she does not avail of any of the capital gain exemptions, what is the tax she will be required to pay. She is 60 years old and does not have any other income.

Thank you for your kind advice.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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02 April 2012 The capital gain shall be calculated as under:

Sale Consideration
Less: Expenses on Transfer
Net Sale Consideration
Less: Indexed Cost of Acquisition
5,00,000*CII of year of sale/100

The balance will be long term capital gain. Out of this income, Rs. 2,00,000(basic exemption) shall be deducted and on the balance amount tax shall be payable @ 20%.

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