Flat purchase in wife’s name: Can you save tax on capital gains and rental income?

financialexpress.com:

Income Tax rules for property purchased in wife’s name: Tax liability arises when you sell a flat at a higher price or when you rent it out to a tenant. In the hope of reducing such tax liability, many people tend to buy a house property in the name of their spouses. However, this trick to save tax doesn’t work as per the rules.

Transferring money to the wife’s bank account to buy a flat in her name doesn’t give the husband any freedom from the capital gains tax liability arising after the sale of such property or the tax liability on income earned by renting it. Transferring the ownership of the flat to one’s spouse also doesn’t absolve the person from tax liability. Let us understand this with two situations:

First, when the property is transferred to wife’s name without consideration

When an individual transfers a house property to his spouse without adequate consideration (or receiving money in lieu of such transfer) then such individual is deemed to be the owner of transferred property under Income Tax rules.

“Section 27 of the Income Tax Act provides that an individual transferring any house property without adequate consideration to their spouse shall deemed to be the owner of the house property so transferred,” says Dr Suresh Surana, Founder, RSM India, a tax consultancy firm.

Also, any rental income or capital gains arising out of such transferred property is taxed in the hand of the deemed owner.

“Any rental income or capital gains derived from such house property shall be taxable in the hands of such individual/deemed owner,” says Dr Surana.

Also Read: Can you save tax by using your wife’s bank account for investing in mutual funds and stocks?

What the above means is that even if you transfer the ownership