News: Gifted Property to Spouse? Capital Gains Taxed to You-22-03-2026

When a property is gifted to a spouse and later sold, the long-term capital gains (LTCG) are taxed in the hands of the spouse who made the gift, not the one who sold it. This follows from Section 64(1)(iv) of the Income-tax Act, under which income from assets transferred to a spouse without adequate consideration is clubbed with the transferor’s income.

The article gives the example of Arjun Mehta, a 42-year-old salaried professional from Mumbai, who gifted a residential property to his wife Kavya Mehta, 39. She became the legal owner and sold it at a profit, but the LTCG was taxed in Arjun’s hands. He had a properly executed gift deed and clear records. Even so, a small mismatch between the dates on the gift deed and the property registration drew a query from the tax officer before the claim was accepted.

Rahul Charkha, Partner, Economic Laws Practice, called the section an anti-avoidance provision. Any income from the gifted asset, including rent and LTCG on sale, is deemed to be the transferring spouse’s income as long as the marriage subsists and the asset can be traced to that transfer.

Structuring can change the outcome. Aarjav Jain, Executive Director and NRI Tax Expert, Dinesh Aarjav and Associates, Chartered Accountants, said that if money is given to a spouse as an interest-free unsecured loan and the spouse independently buys the property, clubbing may not apply, which shifts taxation legitimately.

Because the gains are taxable only in the donor’s hands, only the donor should report them, which rules out double taxation between spouses. Zeel Jambuwala, co-founder and Partner, Aurtus, said that to avoid scrutiny of the seller, a validly executed gift deed or signed gift acknowledgement letter at the time of transfer is essential. Where possible, the property should be formally registered in the recipient’s name with the consideration recorded as a gift.

The gift deed or family settlement deed should state the relationship between the parties, confirm that the transfer is without consideration and give full property details. Charkha said it becomes the primary reference for tax authorities, and advised keeping papers on the original purchase and cost, including sale agreements, conveyance deeds, stamp duty receipts and records of improvements.

A clear banking trail showing who funded the purchase, paid EMIs or financed improvements is also crucial.