My wife had bought a flat in 2003 with her savings. In 2011, when the property became freehold, my name was added to the registry. Now, we want to sell it but buyer is insisting on dividing the sale proceeds 40 lakhs equally and issuance of two separate checks in our name. My wife wants to invest the entire sale proceeds in infrastructure bonds in her name alone, deducting capital gains. Is this possible? If yes, what are the tax implications?
—Name withheld on request
We understand that the residential house property was purchased by your wife wholly out of her own money and your name was added to the registry, without you having to pay for the same. Thus, as per the provisions of the Income Tax (IT) Act, 1961, while computing the income under the head ‘Income from house property’, your wife will be deemed to be the owner of the property.
Further, the capital gains income from the sale of such property will be fully taxable in the hands of your wife. Accordingly, the capital gains income arising in your name from the sale of such property will be clubbed with the income of your wife and will be taxable in her hands.
Since, entire Long Term Capital Gains (LTCG) arising out of sale of assets are required to be presented to tax in the hands of your wife, she alone would be entitled to claim deduction in respect of the amount of LTCG invested by her . Specified notified bonds (including infrastructure bonds). Accordingly, the amount invested in specified bonds within 6 months from the date of sale of the house property, subject to the prescribed conditions, will be eligible for deduction (subject to a maximum capital gains amount).
As per the provisions of the IT Act, the buyer is required to deduct tax at source (TDS) at the time of making the payment if the total sales exceed the consideration 50 lakhs. Since the total sales return . is less than 50 lakhs, no TDS will be levied by the buyer. Hence, no TDS in this regard should be reflected in Form 26AS for you and your wife.
However, the sale of property should appear in both you and your wife’s Taxpayer Information Summary (TIS)/Annual Information Statement (AIS), as available in your online income tax accounts.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.
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