Question: Who will be liable to pay capital gains taxes in the following cases: (i) Suppose a husband transfers his money to his wife’s account. The wife is a homemaker who invests the money sent by the husband in mutual funds and stocks in her own name, or the husband invests this money in these assets in the wife’s name from the wife’s account. In this case, who will pay the capital gains tax on the sale of these assets in future? (ii) A husband buys a home in the name of his wife (money is transferred from the husband’s account to the wife’s account and payments are done from the wife’s account). In this case, who will pay the capital gains tax on the sale of such property in future? Also, who will pay the tax on rent if this property is let out? Response given by CA (Dr.) Suresh Surana: Section 64(1)(iv) of the Income Tax Act provides that if an individual directly or indirectly transfers his/her asset (which may be cash/ money transfer) to their spouse, then income arising from such asset will be clubbed with the income of the individual (i.e., transferor). It is pertinent to note that the aforementioned provisions will not apply if such transfer of asset is made for adequate consideration or as a part of divorce settlement or under an agreement to live apart. Therefore, in the given case where a husband transfers money to his wife’s account, which is subsequently invested by her in mutual funds or stocks in her own name, any income arising in the nature of dividend or interest or capital gains arising on account of transfer of such stocks and mutual funds will be clubbed with the income of the husband (i.e transferor). Similarly, a husband directly investing his money in his wife’s name would attract clubbing provisions u/s 64 of the IT Act as well and hence, any income arising from such assets or capital gains arising on account of transfer of such asset would be clubbed with the income of the husband (i.e. Transferor). Also Read: UPS vs NPS vs OPS: Which is more suitable for your retirement? In the second scenario, Section 27 of the IT Act provides that an individual transferring any house property without adequate consideration to their spouse shall be deemed to be the owner of the house property so transferred. Accordingly, any rental income or capital gains derived from such house property shall be taxable in the hands of such individual / deemed owner. However, in the given case, the transfer being made is of money and not house property and as such the clubbing provisions u/s 64 would be applicable as opposed to the provisions of deemed ownership u/s 27 of the IT Act. Even the Gujarat High Court in the case of Thakar (KD) vs CIT (1979) 120 ITR 190 (Guj) provided that where the property transferred is not a house property but a cash amount from which the wife of the assesssee purchased the house, it was held, it could not be said that the transferor could be a fictional owner u/s 27(i) of the IT Act. However, rental income and capital gains arising from such house property would be subjected to tax in the hands of the transferor (similar to the provisions of S. 27) It is pertinent to note that provisions of this section will not apply if the transfer of house property is made against adequate consideration or in connection with an agreement to live apart. This Q&A series is published every week on Thursday. Disclaimer: The views and facts shared above are those of the expert. They do not reflect the views of financialexpress.com
