by THO
Thinking of gifting a new flat to your wife this Valentine’s Day? While some may view it as an extravagant gesture, it could be the perfect idea for husbands with deep pockets. However, before those wealthy husbands get too carried away, here are a few important tax and legal considerations to bear in mind.
Who will be liable to pay tax on the gifted property?
If a husband gifts a property to his wife, the value of the property is not taxable in the hands of the wife.
“Under the Income-tax law, any property received as a gift from a relative is not taxable in the hands of the recipient. Since wife falls under the definition of ‘relative’, the value of the property gifted by the husband to his wife will not be taxable in her hands,” explains Neetu Vinayak, Partner and Tax Infra Leader, EY India.
Will the cost and the holding period get substituted in the hands of the wife?
While computation of capital gains would be made in the hands of the wife by considering cost and period of holding of the husband, the consequential capital gain shall be clubbed in the hands of the husband, she explains.
Will any income arising from the property such as rental income be clubbed with the husband’s income?
Yes; Given that transfer by way of gift does not confer any tax benefit, the rental income from the gifted property shall be clubbed in the hands of the husband.
Who will receive interest and principal benefits on the home loan?
Assuming that the husband continues to repay the EMI of the loan, the husband could claim deduction of interest and principal payments, says Vinayak.
Will the husband have to pay GST in case of an under construction property?
Liability to Goods and Services Tax would ultimately depend upon the contract with the developer. “Where the developer has been intimated about the transfer (under gift), the GST liability shall be recovered by the developer from the wife,” she adds.
All about gift deeds, stamp duty
If you are planning to gift the property to your wife this Valentine’s Day the first thing to do is to make sure that it is registered. “The gift ought to be effected by way of an written instrument (gift deed) that has been signed by the husband and attested by at least two witnesses,” explains Mona Dewan, Managing Associate, ZEUS Law Associates.
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Make sure the gift deed is registered at the sub-registrar’s office and applicable registration charges and stamp duty will have to be paid prior to registration.
A few states have notified relaxations in stamp duty. For instance, Haryana offers an exemption on stamp duty if the property is transferred to the spouse, she explains.
In the state of Maharashtra, the applicable stamp duty payable if a husband gifts a residential or agricultural property to his wife is ₹200 (Rupees Two Hundred only).
The Uttar Pradesh government recently limited the maximum stamp duty payable on a gift of a residential or agricultural property from a husband to his wife to ₹5000.
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Before the reduction came into force, the stamp duty chargeable in Uttar Pradesh on transfer of a property between family members or blood relations attracted a stamp duty of 7 percent of the value of the property or 7 percent of the circle rate of such immovable property, whichever was higher.
However, a restriction has been imposed in case the property is received through a gift deed and subsequently gifted by the recipient within five years from the date of registration. This means that if the property received through a gift deed is subsequently gifted by the recipient within five years from the date of registration, then the reduced stamp duty benefit will not be available, explains Dewan.
However, in Delhi there is no such exemption and the stamp duty payable on a gift deed from husband to wife is 2% of the circle rate value of the property plus applicable transfer duty levied by Municipal Corporation of Delhi and registration charges thereon, she says.
Once gifted, you cannot retract this expensive gift of a house
It’s important to note that once the property is gifted by the husband to his wife through a validly executed and registered gift deed, the gift is irrevocable. The transfer is complete and binding, meaning the husband (donor) cannot typically revoke or cancel the gift once made. As a result, the wife (donee) becomes the rightful owner of the gifted property, explains Dewan.
