- 15-Apr-2025
- Healthcare and Medical Malpractice
Gifting assets to a spouse can provide various tax benefits under Indian tax laws. The Income Tax Act allows certain exemptions and tax advantages when transferring assets to a spouse, especially if the gifts are not made for consideration and are within the exemption limits. Such transfers can also play a role in tax planning by helping to split income, reduce overall capital gains tax, and avoid or minimize gift tax.
Under Section 56(2) of the Income Tax Act, gifts given to a spouse are exempt from gift tax. This means that if you gift assets to your spouse, there is no gift tax liability, regardless of the value of the assets.
The gift of any property to a spouse is not subject to gift tax if the transfer is made without any consideration (i.e., it's a genuine gift). There is no upper limit on the value of the gift when it is given to a spouse.
Gifts from close relatives, which includes a spouse, are specifically exempt from gift tax under the provisions of the Income Tax Act.
One of the primary tax benefits of gifting assets to a spouse is the potential for income splitting. If the assets generate income (such as rental income, dividend income, or interest income), the income can be attributed to the spouse who holds the asset, potentially lowering the overall tax liability of the family unit.
For example, if a higher-earning spouse gifts income-generating assets (like shares or real estate) to a lower-earning spouse, the income from those assets will be taxed in the hands of the spouse receiving the gift, possibly at a lower tax rate if they fall into a lower income tax bracket.
If the gifted asset (such as shares, real estate, or mutual funds) is sold or transferred in the future, the capital gains tax will apply to the sale or transfer of the asset. However, gifts to a spouse are typically treated as tax-neutral for capital gains purposes under Indian tax laws.
The holding period of the gifted asset is transferred to the spouse. This means that if the spouse later sells the asset, the capital gains will be calculated based on the original purchase price and holding period of the gifting spouse. The benefit here is that long-term capital gains (LTCG) tax may apply if the asset is held for more than 36 months (in case of immovable property) or 12 months (in case of listed securities).
Example: If a spouse gifts shares that were held for more than one year, the spouse receiving the gift can later sell those shares and pay long-term capital gains tax (LTCG), benefiting from indexation on the original purchase price.
Under the Income Tax Act, there is no upper limit for gifting assets to a spouse, provided the transfer is made without consideration. This means the full value of the gifted asset is exempt from gift tax, and the transfer is tax-free.
However, if the gifted asset is subsequently sold or generates income, the tax liability will depend on the income or capital gains arising from that asset.
In the case of certain wealth tax provisions, gifts made to a spouse may help in reducing the overall wealth tax liability of the gifting individual. While wealth tax was abolished in India in 2015, individuals with substantial wealth used to gift assets to spouses to reduce their taxable wealth. This may still be relevant in some estate planning scenarios.
Income from gifted assets is generally not subject to income attribution rules if gifted to a spouse. Under Section 64 of the Income Tax Act, any income generated from assets gifted to minor children or relatives may be clubbed with the income of the person making the gift. However, the gift to a spouse does not attract this provision, and the income will be taxed in the hands of the spouse who holds the asset.
Gifting assets to a spouse as part of estate planning can help in avoiding future estate taxes and simplifying the transfer of assets upon death. This can also ensure that the surviving spouse inherits the assets without incurring significant tax burdens.
Inheritance tax in India is not currently levied, but gifting assets during one's lifetime may help to reduce the estate value that would be taxed, should inheritance tax laws be introduced in the future.
Mr. Sharma gifts a property worth Rs. 50 lakh to his wife. There is no gift tax levied on this transfer since it is made to a spouse. If the wife later rents out the property and earns rental income of Rs. 5 lakh annually, this income will be taxed in her hands based on her applicable income tax bracket. If she is in a lower tax bracket, the overall tax liability is reduced.
Mr. Gupta gifts shares worth Rs. 10 lakh to his wife, which he had held for over 3 years. Later, the wife sells these shares for Rs. 12 lakh. Since the shares were held for more than one year, they are subject to long-term capital gains tax (LTCG), and the holding period of Mr. Gupta is transferred to his wife. She will benefit from the indexation benefit on the original cost of the shares, reducing the taxable capital gains.
Mr. Verma gifts a fixed deposit worth Rs. 10 lakh to his wife. The interest earned from the FD is taxable in her hands as income from other sources. However, if she is in a lower tax bracket, the overall tax liability of the family unit will be lower.
Gifting assets to a spouse can provide multiple tax benefits under Indian tax laws. These include exemption from gift tax, the ability to split income, reduce capital gains tax by utilizing the holding period, and avoid income attribution rules. Such gifts can also help with estate planning and reduce overall family tax liabilities. The absence of gift tax on transfers to a spouse makes it an effective tax planning tool, particularly for those with substantial assets or income-generating properties. However, it is important to understand the potential tax implications of the income generated from gifted assets and consult a tax advisor for effective tax planning.
Answer By Law4u Team
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