How income tax rule applies if husband buys plot in the name of his wife?

• April 10, 2023
• CA Chandan Agarwal's Office

Income tax expert believes that purchase of the other plot by you in your wife’s name will be treated as gift made by you to your wife

I had purchased two adjacent plots in March, 2003 for ₹6 lakhs each. One was purchased in my name and the second was purchased in my wife’s name. I had paid for both these plots. Now I want to sell both the plots and expect to get around ₹75 lakhs. I am a salaried person and my wife is home maker. How can we get exemption from Long term capital gains on sale of these plots? I own two residential flats in my name.

Answer: Purchase of the other plot by you in your wife’s name will be treated as gift made by you to your wife. As per the provisions of Section 64 of Income Tax Act, when an asset is gifted by one spouse to another, any income arising on such gifted property is required to be clubbed with the income of the spouse transferring such asset. The clubbing provisions will continue to apply till the marriage subsists even if the transferred asset is converted into other asset. The clubbing provisions will apply on income from the asset so transferred but on the income which arises on income so clubbed and further invested.

So capital gains on sale of both the plots will be taxed in your hands. One can avail tax exemption on sale of a plot if held for more than 24 months either by investing the sale proceeds in a residential house under Section 54F or by investing the capital gains in capital gains bonds under Section 54EC. Since you already own two flats in your name you are not eligible to avail tax exemption under Section 54F.

However, you can still claim exemption under Section 54EC by investing in capital gains bonds of Rural Electrification Corporation (REC), National Highway authority of India (NHAI), Power Finance Corporation (PFC) or Indian Railway Finance Corporation. Your indexed cost of both the plots comes to around Rs. 18.91 Lacs and the indexed long term capital gains come to Rs. 56.09 lakhs. Since one can invest maximum Rs. 50 lakhs in a year and in respect of long term capital gains of a year, you will have to pay tax at 20% on the balance long term capital gains of Rs. 6.09 lakhs. The investment in bonds has to be made within six months from the date of sale of the capital asset.

Source: https://www.livemint.com/money/personal-finance/how-income-tax-rule-applies-if-husband-buys-plot-in-the-name-of-his-wife-11680943130532.html