Income Tax Rules for Property Purchased in the Wife's Name: Capital Gains Tax Implications

Discover if purchasing property in your wife's name truly offers tax benefits, including insights on capital gains

• Look into any possible tax advantages or disadvantages of buying property in your wife's name.

• Recognise how different types of property ownership might affect capital gains tax and tax on rental income.

• Discover practical methods for making property ownership decisions that can optimise your tax status.

If a husband buys a property in his wife's name, are there any tax benefits or limitations?

One of the tax benefits a husband gets when he buys a property in his wife’s name is the deduction under 80C. If their property is classified as self-occupied, they can deduct up to Rs. 1.5 lakh in income tax from the principal repayment of a home loan each fiscal year.

As long as they don't have any other properties registered in their respective or joint names, it still applies, even if the house is vacant.

However, Under Section 27 of the Income Tax 1961 Act, this method will not adhere to the regulations in certain circumstances. To see why, consider the following:

Let's say the wife is a homemaker and her income is nil; in such a scenario, the husband will not receive any additional tax benefits because the wife is not qualified to do so.

The husband is not exempt from the capital gains tax liability that would arise upon the sale of such property or the tax liability on rental income by transferring funds to the wife's bank account.

Also, if you don't have the legal right to your property, certain issues might develop later.

To protect your rights, it is thus better to make sure that your name is on the property documents as well.

Capital Gains Tax

When you transfer property to your wife's name, capital gains tax may be due if your wife ever decides to sell the flat. She would normally be responsible for paying the capital gains tax.

Also Read: Pay zero tax: Step-by-step guide those earning Rs10 lakhs

Tax on Rental Income:

 If your wife owns the flat and receives rent from it, she is typically responsible for paying income tax on the rent she receives on the flat. 

Useful strategies for choosing investments in property that will improve your tax liability:

• If you use your house loan to pay for the acquisition of a property, you can benefit from tax deductions for both the principal and interest portions of the loan.

• If you use a section of your property for business purposes, you may be eligible to deduct costs for your home office from your taxes.

Conclusion:

To conclude, using the wife’s name when purchasing a property may have some short-term benefits, but the complications may be even greater in the long run; so choose wisely and take professional advice, if required!

Get the latest articles on Tax Planning here.

Also Read: Investing in the Future: Budget 2023 Sets Records for Education Funding

 Disclaimer: This article is intended for general information purposes only and should not be construed as insurance or investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.