My Cousin has recently sold his flat for Rs 10 Lakhs. The Entire amount has been received in cheque by him. He has decided to transfer the entire 10 Lakhs to his wife's bank account ( who is a housewife with no source of income ), which would then be utilised in opening a Fixed Deposit. My Cousin too has never filed a Tax return as his Income is well below the exemption limit. I just wished to know the Tax implications for him or his wife for this Rs 10 Lakhs. Regards Harish
Dear Harish,
In the said case your cousin will attract the tax on the entire amount earned as interest from deposit of Rs. 10,00,000/- kept in the name of her wife and he has to offered the same to the tax every year by filing return.
also note that bank will deduct the TDS from interest if your cousin do not submit form No. 15G to the bankers.
In the present case you need to first calculate the capital gains tax liability. We can do that if we have purchase and sale date and value. After paying the tax if any he can gift the same to his wife no problem. But the transaction should be such that it does not show that if the amount is made FD in his name then tax liability will be there, or else it will come under clubbing provisions.
Hello Sir,
1. The First transaction here, is a Sale of Property/ Flat. Such a Sale of Flat will attract Capital Gain, on which Tax has to be paid by your brother.
2. After paying Taxes, he may transfer the funds to his wife's name in order to make an FD, but doing so the Income on such FD will still be taxable in his own name because of the Clubbing Provisions. So if he wants to make an FD in his wife's name and avoid it getting clubbed in his own name, then it has to be pre-planned and routed well within the ambit of the act with the help of a professional. So that even your job is done and no future consequences arise.
Hope this clarifies your Query.
Feel Free to get back for any further clarifications.
Thanking You.
Regards,
CA Rohit R Sharma.
Thanks a lot for the timely help. But i wished to know, in case my brother purchases a flat within the next one or two years, then would Capital gains still arise. Also, his wife has been filing a NIL Tax Return every year. So would Clubbing provisions still arise or can she show the Entire interest income while filing her returns. Regards Harish Shetty
Sir,
Your brother can purchase the house within 2 years from the date of sale. But he should invest the amount in Capital Gains FD with any nationalised Bank within 6 months from sale date and the amount is to be used only for purchase of House/residential property.
You cannot keep the same under normal FD.
Sir you please provide us the date and amount of sale and purchase to arrive if any capital gains tax is arriving.
Hello Sir,
Capital gain would not arise if he purchases a flat in a span of 2 years from the date of sale, but till that time he has to deposit the funds in a Capital Gain saving Scheme account and this deposit has to be made before the due date of filing of returns for the year in which sale was made.
Even if his wife is filing a Nil Return, still clubbing provisions would arise.
Hope this clarifies your Query.
Feel Free to get back for any further clarifications.
Thanking You.
Regards,
CA Rohit R Sharma.
Dear Mr. Harish,
Please note that if a new building is purchased by your brother than amount of investment shall be reduced from capital gain liabilities.
Even though his wife have nil income tax return it will not have any implications on the tax liability and clubbing provisions.