Summary of this article
You can gift property to your wife without any tax liability.
Your wife receives the gift tax-free as a specified relative under law.
Rental income remains taxable in your hands due to clubbing provisions.
I bought a house in December 2021 with a home loan. I have availed of the tax benefits under Section 80 C and Section 24 of the Income-tax Act, 1961 for all these years. Now I am planning to sell this house in September 2026 and repay the home loan. What are the tax implications if I prepay the home loan in September 2026 in full?
Under the provisions of Income-tax Act, 1961 as well as the Income-tax Act, 2025 (which came into force from April 1, 2026), if you sell a house property which was bought with home loan within five year from the date of purchase, all the tax benefits enjoyed by you previously in respect of home loan repayment, shall be reversed and shall be treated as income of the year in which the property is sold.
Do note that there is no such provision for reversal of tax benefits in respect of interest claimed previously. So, in case you sell the house property in September 2026, all the income tax benefits claimed by you in respect of principal repayment shall be treated as income of this year as the property is being sold within five year of its acquisition.
It is advisable that you complete five years from the date on which the possession of the house was taken so as to avoid the consequences of reversal of tax benefits availed by earlier in respect of repayment of the home loan. It is a matter of just 3-4 months.
Also, since the house has been held for more than 24 months, you may have to pay long-term capital gains (LTCG) tax whenever you sell the property. Since the property was acquired before July 23, 2024, you have the option to either pay tax at 12.50 per cent on the plain LTCG or 20 per cent on indexed LTCG presuming you are a resident for income tax purposes.
If you do not wish to pay LTCG tax, you can invest the difference to buy a residential house within the prescribed time period and/or invest the amount in capital gain bonds of specified financial institutions within six months from date of sale of the house.
Prepaying the home loan will not have any consequence on your tax liability. You may, however, have to pay the prepayment charges according to the terms of sanction of the home loan with your lender.
My wife and I are the joint owners of a property which is currently let out on rent. Can I gift this property to my wife? Will this reduce my tax liability as the full rent will be paid to my wife?
You can gift your property to any person, including your wife, without incurring any tax liability. Since a wife is considered a specified relative under the income tax laws, she also will not have to pay any tax on such a gift which otherwise is payable by the recipient of a gift in case the aggregate value of all the gifts exceeds Rs. 50,000 in a year.
Do note that there is no income tax implication per se on the value of the gift received by your wife from you, but under the provisions of Income-tax Act, 2025 which has come into effect from April 1, 2026, if a person transfers any asset without consideration to his/her spouse, the income generated from that asset shall be included in the income of the spouse who transfers such property, year after year. So this arrangement of transfer of the house to your wife by way of gift will not serve your purpose in reducing your income tax liability.
