Afew years back the Gift Tax Act was abolished. So, there is no gift taxon the
gift of either property or funds for the purchase of residentialproperty.
However the income earned from such gifts are taxed in adifferent way. One must
keep in mind the provision relating to clubbingof income before deciding on the
funding options within the family.
UnderSection 64 of the Income Tax, clubbing of income provisions have
beenincorporated. The section is intended to prevent tax evasion bydiversion of
income, by camouflaging the transactions and disguisingthem as transfer, which
is not the case in the real sense of the word.In computing the total income of
any individual, all such incomesarising directly or indirectly from assets
transferred without adequateconsideration, are included.
Whenan asset is transferred by an individual, directly or indirectly,without
adequate consideration, to a person or to an association ofpersons for the
immediate or deferred benefit of his/ her spouse thenthe income arising from
the transferred assets is included in the totalincome of the transferor to the
extent of such benefit. In case theasset is transferred by an individual,
directly or indirectly, withoutadequate consideration, to a person or to an
association of persons forthe immediate or deferred benefit of son’s wife, then
the incomearising from the transferred assets is included in the total income
ofthe transferor to the extent of such benefit.
Incase an individual makes a cash gift to his wife, who in turn purchasesa
residential property with the gifted money, then the individual willnot be
treated as fictional owner of the property. Taxable income ofwife from the
property is inclusive in the income of the individual incase she uses the house
property for her own residential purposes.
Ifa person transfers residential property, without consideration to his /her
spouse or to his minor child, then the transferor is deemed to bethe owner of
the residential property and taxed accordingly. If aperson transfers house
property, without consideration to his son’swife or child, then the transferor
will not be deemed to be the ownerof the house property. However, the income
earned from the houseproperty shall be included in the income of the
transferor. Transfereewill be treated as the owner of the house property and
the incomecomputed in her hands is included in the income of the transferor.
Whilepurchasing house property, it should be ensured that the person inwhose
name the property is being purchased should have sufficientfunds. This is
essential to avoid problems from the income taxdepartment. In case the funds
are not sufficient, one may receive giftsor take loan from any person,
organisation or bank. One should avoidtaking gift from the spouse. Moreover the
wife should not receive agift of money for buying property from the husband,
father-in-law ormother-in-law.
In
whichever family member’s name you want to buy a property, you should
ensure that his name is clearly mentioned in the agreement to sell or
the sale deed. The legal ownership is based on the name in which the
property is finally registered. If the property is purchased jointly
then the percentage of each co-owner should be clearly mentioned in the
agreement.
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