Tax Talk

I own a house in Mumbai in which I live. I understand that if I give it on rent, the rental income will be added to my income. Can I reduce my tax liability by gifting the property to my wife, and then renting out the house?

Shrikar M Shetty

According to section 64 of the Income Tax Act, 1961 (the Act), any transfer of an asset to spouse without adequate consideration attracts clubbing provisions and accordingly the income arising to the spouse out of the asset transferred is taxable in the hands of the spouse, who had transferred the asset.

However, if your wife re-invests the rental income so received, in any other income bearing instrument and earns income, the second generation of income shall be taxable in her hands and shall not be clubbed with your income.

Please note that you may be required to execute registered deed/gift deed to document the gift transaction and comply with the stamp duty requirements.

I own two houses. One is in Mumbai, which I wish to let out for the complete tax year 2013-14. I occupy the other one. Do I have to pay wealth tax on any of the two properties?

Vipul

According to the provisions of the Wealth Tax Act, 1957 (Wealth Tax Act), any residential property that has been let out for a minimum period of 300 days in the previous year, is not included as a taxable asset. Since, your Mumbai property would be let out for at least 300 days during the previous year 2013-14, wealth tax would not be applicable on the same.

Further, provisions of the Wealth Tax Act provide for exemption in relation to any one house or plot of land owned by an individual. Accordingly, in your case, you may avail of this exemption in relation to your only house property, which is covered under the ambit of the Wealth Tax Act. Thus, by availing this exemption, Wealth Tax will not be applicable on both the house properties for the previous year 2013-14. You will have to assess your other assets as well on the valuation date, to arrive at your net wealth tax liability, if any.

Mail your queries to >taxtalk@thehindu.co.in

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