NEW DELHI: Gift a house or flat to your spouse to save tax, and the Income Tax Department may now know about it.
Starting this year, property sub-registrars must report property gift deeds involving assets valued above ₹45 lakh to the tax department. Until the last financial year, only property sales, not gifts that did not involve a sale, were reported.
“Registrars will now submit a SFT (Statement of Financial Transaction) with details of such transactions and it will reflect in the taxpayer’s AIS (Annual Information Statement). These transactions were not visible to the tax department so far, which will now change,” said Bhawna Kakkar, chartered accountant and founder, Kakkar & Co., Chartered Accountants.
The disclosure will allow the tax department to verify whether any income or tax implications linked to the transfer have been properly reported.
When gifting property to a spouse
The move could affect taxpayers who ignore so-called clubbing provisions in the tax law.
Under these rules, if an individual transfers an asset to their spouse, minor child or daughter-in-law without adequate consideration, any income arising from that asset, such as rent, dividends, interest or capital gains when the asset is sold, must still be taxed in the hands of the original owner (the transferor), not the recipient.
In other words, simply to a spouse does not shift the tax liability on the income it generates.
Many individuals gift immovable property or investments to spouses to take advantage of lower tax slabs or avoid surcharge, said Kakkar.
“Say a man’s income is ₹1 crore. If he reports rental income or invests in his own name, he will need to pay a surcharge of 15%. So, to save tax he gifts the property to his wife who may be in a lower tax slab or non-earning member and benefit from lower slab rates,” Kakkar said. But as per the law, the man will need to report the in his ITR and pay tax, along with surcharge.
Clubbing provisions do not apply when property is gifted to major children, parents or parents-in-law. In such cases, the recipient is responsible for paying tax on income or capital gains arising from the asset, something the tax department can now track more easily.
Tightening scrutiny
Prakash Hegde, a Bengaluru-based chartered accountant (CA), said the impact may be greater in cases involving more complex misuse, particularly high-value transactions linked to unaccounted money.
“Some taxpayers may buy properties using cash, often not reported, in the names of relatives in benami-like arrangements. Years later, they are ‘gifted’ within the family to legitimize ownership. Such transactions will now be easier to track and the department may question the source of the funds used for buying the property,” Hegde explained.
However, transactions where property is registered directly in a spouse’s name from the outset are not captured as gifts and may escape this specific reporting mechanism.
Still, Hegde said the added transparency could benefit genuine transactions by improving documentation and reducing disputes. “But for non-genuine or tax-motivated transfers, such as gifting assets to avoid tax, the department now has more visibility and can question the intent and tax treatment.”