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You may want to buy a property in your wife’s name to take advantage of a lower stamp duty or any other incentives. It may appear as a cheaper proposition but there are tax pitfalls if you are not careful. Gifts and “clubbing” under the Income‑tax Act 1961 (ITA) make it hard for many property buyers to actually avoid tax on a property bought in the name of their wife. Why some buyers may want to do it anyway? Gifts and clubbing under the Income‑tax Act 1961 (ITA) make it hard for many property buyers to actually avoid tax on a property bought in the name of their wife. A lower stamp duty is one motivation. For example in many states registration in the name of a woman fetches a discount on the stamp duty rate. In the words of one real-life question: “I am going to buy a property in the name of my wife because stamp duty is 1 % less for female in Maharashtra state. But the issue is my wife is not an earning member.” The shortcut is not foolproof - the tax net is larger than you think. Gift or purchase? A technical distinction In this scenario since the payment of the entire amount is being made by the husband at the time of registration of the property in the wife’s name for all intents and purposes it is a gift by the husband to the wife. Gifts received by an individual from certain relatives specified in the law (which include a wife) are not taxed as income of the recipient under Section 56 of the ITA. So if the above buyer’s wife does not have any other income then your wife is not going to owe tax on your gift to her just by virtue of the property being in her name. Clubbing provisions apply - Liability lingers on Here’s the rub: that same property once purchased (read: gifted) to your wife may not in fact be hers alone to enjoy tax-wise. Any income (rent for example) or gains (on sale for example) that accrue to that property are in effect attributed to the husband’s income thanks to the clubbing provisions of Section 64 of the ITA. If the property is rented out the rental income will be added to the income of the husband and taxed accordingly. If self-occupied then the clubbing provisions don’t apply since the wife is not earning any income. When the asset is sold the capital gains are added (clubbed) to the husband’s income even though the asset was in the wife’s name. Clubbing provisions apply for the lifetime of the marriage even if the asset is converted (say from a house to gold to cash). How it affects your property-planning decisions? In other words if your only plan is to shift tax liability away from your name to a non-earning spouse’s name then think again. You may have paid a little less on stamps and registration fees but if the property generates income or gains the taxman may still come after you since you are the effective beneficiary. If you are in doubt if your transaction qualifies as a bona fide purchase (by the spouse) or is effectively a gift (invoking the clubbing rules) get a tax adviser’s view. Structuring is important. The takeaways Buying a property in your wife’s name may offer some immediate cosmetic benefits but it doesn’t automatically put you in the clear as far as tax liability on income or gains goes. The clubbing provisions of Section 64 of the ITA may reel you back into the tax net even when the property is nominally under the wife’s name. Make sure you plan your move with a larger financial and tax plan in mind - and don’t get caught in the trap of trading short-term stamp duty savings against long-term tax costs.