Gift of Property Share from Husband to Wife Eligible for Capital Gain Exemption, But Clubbing and Capital Gains Rules Apply: Rules ITAT

The Income Tax Appellate Tribunal (ITAT) has clarified the tax implications of a property gift between spouses. The tribunal ruled that if a husband gifts his share in a property to his wife, and she subsequently sells it, she is eligible to claim capital gains exemption under Section 54F by reinvesting the proceeds in a new residential house. However, the ITAT also affirmed that the clubbing provisions under Section 64 of the Income Tax Act would apply. This means that the capital gains arising from the sale, even though the property is in the wife's name, will be clubbed with the husband's income and taxed in his hands. This ruling navigates the complex interplay between capital gains exemptions and income clubbing provisions, providing clarity that while the exemption can be claimed, the ultimate tax liability on the gain rests with the spouse who originally owned the asset.