I gifted shares to my wife worth Rs 15 lakh and the income from them was clubbed with my income. Now, I propose to purchase a property. My wife will sell those shares and invest the money in the property. But, if I earn rental income from the same property will it be clubbed with my income?
Atul Sobti, Gurgaon
You have tried to smartly reduce your tax liability, but tax laws are not that simple and straightforward. As per Income Tax Act, if any asset is purchased out of the proceeds of a gifted asset whose income was clubbed previously, the new asset’s income shall also be clubbed. In such a case the asset is considered to have merely changed shape and form. Therefore, the rental income from the property which you wish to acquire will be clubbed with your income because the amount used for the purchase of the property was originally gifted by you.