Gifting Property Between Spouses: Legal Under Income Tax Rules, But Is It Truly Beneficial?
Gifting property—such as a flat or house—between husband and wife is legally valid under India’s income tax laws. At first glance, it appears highly advantageous because no immediate tax liability arises. However, while the law recognizes such transfers as tax-free gifts, the real impact comes later under what is known as the clubbing provision. Here’s a detailed look at how the rules work, what benefits exist, and what pitfalls you should be aware of before making such a move.
No Immediate Tax on Gifts Between Spouses
Under the Income Tax Act, gifts received from a spouse are not considered taxable income. This means that if a wife gifts her flat to her husband, he does not have to pay any tax at the time of transfer. Typically, gifts valued above ₹50,000 from non-relatives attract tax. But in the case of a husband and wife, there is no monetary limit—property worth even several crores can be gifted without triggering tax liability.
This makes property gifting between spouses a legitimate and seemingly attractive option, especially for families looking to transfer assets without additional tax costs.
The Catch: Clubbing Provision
The real challenge arises once the gifted property begins generating income. As per the clubbing rules under the Income Tax Act, any income earned from the gifted asset is not taxed in the hands of the recipient spouse. Instead, it is “clubbed” with the income of the original owner.
For example, if a husband earns rental income from a flat gifted by his wife, the rent will not be considered part of his taxable income. Instead, it will be added to the wife’s income, and she will bear the tax burden. Even if the husband sells the property and reinvests the proceeds elsewhere, the gains will still be clubbed with the wife’s income.
Capital Gains Calculation
If the gifted property is sold, capital gains tax also falls under the clubbing rule. In such cases, the original purchase price and holding period of the property—belonging to the gifting spouse—are considered for tax calculation. Whether the gain qualifies as short-term or long-term is determined based on the wife’s original ownership, not the husband’s. The eventual tax liability still rests with the wife.
Stamp Duty and Registration Charges Apply
While income tax rules exempt such gifts, state laws require payment of stamp duty and registration charges on property transfers, even between spouses. The good news is that many states offer concessional stamp duty rates for property gifts between husband and wife, making the transaction financially less burdensome compared to market transfers.
Is It Really Beneficial?
On paper, gifting property between spouses seems like a smart tax-free strategy. However, the clubbing provision significantly limits its effectiveness. The income or gains generated from the gifted property continue to remain taxable in the hands of the original owner, thereby reducing the overall benefit.
That said, gifting can still make sense for estate planning, succession purposes, or ensuring that a spouse has legal ownership of assets. It can also help streamline family wealth management, especially when combined with other financial strategies.
Key Takeaway
Gifting property between husband and wife is completely legal and does not attract income tax at the time of transfer. But the tax implications do not end there—the income and capital gains from the gifted property will still be taxed in the hands of the original owner. Additionally, stamp duty and registration charges must be factored into the decision.
In short, while property gifting between spouses is a useful legal tool, it is not always financially rewarding from a tax-saving perspective. Couples should carefully weigh the pros and cons—and ideally consult a tax advisor—before proceeding.
