How to show Capital Gain on gifted property

• ITR Reporting: Split the capital gains 50:50 in both returns. Use the AIS feedback portal on the wife's login to assign 50% of the transaction to the husband's PAN to prevent system mismatches.

• Section 54 Exemption: The husband is fully eligible to claim the Section 54 exemption on his 50% clubbed gains, as the joint loan was cleared using the sale proceeds and judicial precedents support reinvestments made in a spouse's name.

• Scrutiny Readiness: Expect automated queries due to the AIS mismatch; maintain a strong, clear paper trail (Gift Deed, bank records, and loan repayment receipts) to easily clear scrutiny.

This is a clubbing scenario under Section 64(1)(iv). Here is how each of your three questions resolves.

On ITR reporting: The wife should report the full capital gain in her ITR. She shows the complete sale (full consideration, cost of acquisition = FMV on date of gift to wife, holding period includes husband original holding period). Then in the husband ITR, the same gain is included under Schedule SI (special income) as clubbed income from spouse. The husband pays tax on it. The wife does not pay tax on it , she just discloses it and references the clubbing provision.

On Section 54 eligibility: Section 54 exemption must be claimed by the person in whose hands the capital gain is taxable. Since the gain is taxable in the husband hands (clubbed income), the Section 54 investment must be made by the husband. A new property registered solely in the wife name may not satisfy this requirement, even if the husband funded it. The safest approach is for the new property to be in the husband name or at minimum jointly held by both. Joint loan is generally acceptable but the beneficial ownership title needs to be in the husband name for a clean Section 54 claim.

On scrutiny risk: Yes, AOs do scrutinize gift-and-sell arrangements, especially when Section 54 is involved. Maintain a clean paper trail , the gift deed (must be registered if immovable property), bank transfer records showing no consideration paid (a genuine gift), and the Section 54 purchase timeline (within 1 year before or 2 years after sale, or 3 years for construction). This documentation typically resolves scrutiny at the assessment stage.

For the full clubbing rules with examples for spouse, minor, and HUF, this [Section 64 clubbing guide](https://taxgarden.in/blog/clubbing-of-income-section-64-spouse-minor-huf-rules-india-ay-2026-27) is a useful reference.