No capital gains tax on spouse gift
QI purchased a plot of land at Vijayawada in the name of my wife in the year 2007. Now my wife wants to gift it by executing a Gift Deed in my favour and getting it registered.
After this transaction, I want to sell the plot and invest the sale proceeds in construction of a house in Hyderabad. My question is:
Will the transaction of gifting of property fall under the definition of "transfer" under Section 2(47)
If the transaction is not a transfer, then when I sell the plot of land, can I claim exemption u/s 54F by investing the entire proceeds in the construction of house in Hyderabad?
Will the period of holding be reckoned from the date the plot was held by my wife (previous owner) or from the date of registration of gift deed?
Whether the capital gain arising on the sale of plot will be a long term or short-term capital gain?
What will be the cost for the purpose of indexation? Is it the cost to the previous owner (my wife) or the stamp duty value? Is there any way I can avoid capital gains tax? Surendar Reddy
Vijayawada According to section 2(47), “Transfer” in relation to a capital asset, includes "the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein" The above definition will not be relevant in your case, since section 56(2) (vii) provides that value of any sum of money/ immovable property/ movable property received without consideration or for inadequate consideration is chargeable to income-tax in the assessment of the recipient (i.e. donee) under the head "Income from other sources" in cases where an individual or a HUF receives, in any previous year, from any person or persons on or after 1-102009. However, provisions of section 56(2) (vii) will not apply to any sum of money or any property received:
from any relative as defined under section 56(2)(vi).
on the occasion of marriage of individual
under a will or by way of inheritance
in contemplation of death of the payer or donor from any local authority from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to section 10(23C)
from any trust or institution registered u/s 12AA.
Further, section 56(2) (vii) cannot be read in isolation as the clubbing provisions enumerated u/s 64(1) (iv) shall become applicable, wherein an individual transfers an asset to his/her spouse either directly or indirectly and the asset is transferred otherwise than for adequate consideration or in connection with an agreement to live apart, any income from such asset shall be deemed to be the income of the taxpayer who has transferred the asset. The capital gain arising on sale of plot will be long term capital gain (LTCG) and, hence, indexation benefit is available on the cost of acquisition. The LTCG tax can be avoided by investing the LTCG in capital gain bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC) as provided u/s 54EC.
The other option of avoiding/reducing the LTCG tax is by investing the net sale consideration in the purchase of a residential house within a period of one year before or two years after the date of transfer or sale of original asset, or by investing in the construction of a residential house within three years after the date of transfer/sale of original asset, as specified u/s 54F. (The writer is a chartered accountant. He can be contacted at info@ rathiandmalani.com)
THE CLUBBING PROVISIONS U/S 64(1)(IV) WILL BE APPLICABLE, IF AN INDIVIDUAL TRANSFERS ANY ASSET TO HIS OR HER SPOUSE WITHOUT ADEQUATE CONSIDERATION.