I sold a house which was jointly owned by my wife. How income tax is calculated
PremiumAs the house was sold after having held for more than two years, the profits made on such sale are to be treated as long term capital gains
Question: I had bought a house in joint names of me and my wife in March, 1995 for Rs. 8 lakhs. I was the first holder of the house. The down payment as well as all the EMIs were paid by me. I have sold it for Rs. 2 Crores in May 2021. The full payment is credited in my wife’s bank account as she is a joint holder. I am planning to invest this money in my wife’s name. Is this legally perfect? Am I required to pay any tax as I have not received any amount for sale of the house?
Answer: Please understand that just because your wife’s name was added as joint holder of the house without any contribution from her, she does not become owner of the property. You continued to remain full beneficial owner of the house. Though you have not received the money for sale of the flat but the money received by your wife is to be treated as money received by you for sale of the house.
MORE FROM THIS SECTIONSee All
As the house was sold after having held for more than two years, the profits made on such sale are to be treated as long term capital gains on which you have to pay tax at 20% after taking into account the indexed cost of your house. Since the house was bought before 1st April 2001, you have the option to treat the market value of this house as on 1-4-2001 as cost of acquisition of this property and apply cost inflation index accordingly. For finding out the fair market value of the house on 1st April 2001, you can obtain a valuation report from any registered valuer.
You can save the capital gains by investing the amount of indexed capital gains either in a residential house or in capital gains bonds within prescribed time.
Since you intend to let your wife keep the money, the money received by her on sale of the house shall be deemed to be gift made by you to your wife. This transaction of deemed gift by you to your wife does not have any immediate tax implication for any of you. However, any income which arises to your wife on investments made with this money will be added to your income and you will have to pay tax on such income earned by your wife as long as the marriage subsists. Please note that only the income earned on this money is required to be clubbed with your income and not the income earned by her by investing the income clubbed. Plainly speaking the clubbing provisions will not apply on income earned on income.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com
Never miss a story! Stay connected and informed with Mint. Download our App Now!!