Gifting a house to your wife on Valentine’s Day may be a romantic gesture, but it also calls for careful tax and legal planning. Surprising her with the keys to a dream home sounds heartwarming, yet transferring immovable property in India carries important tax, legal, and regulatory implications.
Spousal gifts: tax basics
Under Section 56(2)(x) of the Income Tax Act, gifts from spouses are fully exempt from tax for the recipient, regardless of value, even if the house is worth ₹1 crore or more.
“A wife is treated as a relative under the Income Tax Act, so when a husband gifts a property to his wife without any consideration, it is completely tax-free, both in the donor’s and the recipient’s hands,” says Vivek Jalan, Partner at Tax Connect Advisory Services.
“While the gift itself is exempt under Section 56, the husband remains liable under Section 64 clubbing provisions, meaning any rental income or future capital gains from the property will be added to his taxable income,” says Abhishek Kumar, founder of SahajMoney, a low-cost fixed-fee SEBI RIA.
He must also factor in significant out-of-pocket expenses for stamp duty and registration fees, which are mandatory for legalising the transfer, and this can vary from state to state. Furthermore, the husband remains responsible for reporting the asset in his own tax disclosures if the income generated pushes him into a higher surcharge bracket.
Document everything: gift deed, relationship proof (marriage certificate), title deeds, and PAN/Aadhaar.
“The gift itself isn’t a ‘transfer’ under Section 47(iii), so no capital gain tax is levied at the gifting stage, but if a sale triggers in the future, the computation is done using the original donor’s cost and holding period. For example, you bought for ₹50 lakh (indexed to ₹80 lakh), you gift to wife and later on she sells for ₹1.5 crore—LTCG ₹70 lakh taxed in your ITR,” says Madhupam Krishna, Securities and Exchange Board of India (Sebi) registered investment advisor (RIA) and chief planner, WealthWisher Financial Planner and Advisors.
Smart ways to bypass clubbing
Income clubbing on gifted property to a spouse under Section 64(1)(iv) of the Income Tax Act can be minimised legally through structured planning, without evasion. These strategies can leverage exemptions.
One option is to prefer sales over gifting. You can sell the house at fair market value via a registered sale deed with bank transfers. This is treated as an arm’s-length transaction, no “gift without consideration,” so future rental income or capital gains tax in her hands alone, bypassing clubbing.
Also, effectively use the second-generation income. Direct income (e.g., first-year rent) clubs with you, but reinvest it (say, in MFs)—subsequent “income on income” taxes solely in her hands. Also, instead of your wife, you can transfer property to major children (18+), your parents, or siblings. This will invoke income taxes independently, enabling family income splitting.
When gifting makes sense and when not
“Gifting property to your spouse rarely makes tax sense. This is due to Section 64’s ironclad clubbing of rental income and capital gains back to you, often at higher slabs if you’re in a superior bracket. But it may benefit in non-tax scenarios like estate planning or creditor protection, where upfront capital gain tax avoidance/deferral trumps ongoing liabilities,” says Krishna.
Suppose you’ve held the property long-term with massive appreciation (e.g., bought ₹20 lakh, now ₹1.5 crore). Gifting skips your 12.5% LTCG hit; wife sells later using your original cost/holding. This is a deferral only, as gains still belong to you. Net tax is the same, but the time value of money wins if rates rise or you expect lower future slabs.
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“If the wife is in the nil/lower bracket (e.g., homemaker) and property generates rent, then rent will club once, but her reinvestments (MFs) yield tax-free in her hands long-term. But this won’t work in a reverse situation where her slab is equal to or more than yours,” says Krishna.
How to minimise tax outgo?
“Buy the property in joint names by providing her funds as a loan at market rates, say 8%. This will avoid clubbing. She buys in her own name using loan funds. Your interest income is reported in ITR under “other sources.” Zero clubbing risk,” says Krishna.
If you continue paying the home loan EMIs on a gifted property that is now in your wife’s name, the deductions flow through the income clubbing rules under Section 64, making you the claimant, not her, despite legal ownership.
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Clubbed rental income (zero for self-use) allows you to deduct interest paid (Section 24(b)). Interest deducted has a ₹2 lakh cap (self-occupied) for the payer. Your wife cannot claim this independently since the income is attributed to you. You can also claim the Section 80C principal ( ₹1.5 lakh) rebate as the actual repayer of the loan.
The exception to this is when she makes independent payments from her own income.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics