I have recently become a citizen of Canada. Till now I was holding NRE and NRO accounts in India, as well as several other investments. My wife, who is a Canadian citizen, is now a part of my financial life as well and I want to transfer two rental properties in India in her name. Please let me know how the taxes for that will be filed? Will she have to get an Aadhaar and PAN? Can I get a PAN in Canada? If so, what is the process?
—Name withheld on request
Taxability on transfer of house property to spouse:
Under the India income-tax laws, income tax is payable on any sum of money, movable property or immovable property received by an individual without consideration, except if the same is received from a ‘relative’. Under this provision, the term ‘relative’ includes spouse.
Accordingly, a transfer of house property in India to your wife will not be subject to tax in India. A gift deed registering the transfer of property in India is recommended.
Taxability of rental income from house property received by spouse:
Under the India income-tax laws, in case an individual transfers any house property in India to his or her spouse without adequate consideration, the transferor will be considered as the deemed owner of the house property so transferred. Hence, any rental income received from the said house property in India will still be taxable in your hands. You will be required to pay applicable taxes and file the income-tax return in India disclosing rental income from the said house property.
However, any further income derived by your wife from investing the said rental income like interest from bank etcetera, may be taxable in her hands. Your wife will be required to file an income-tax return in India in case her total income (i.e., gross income excluding the exempt income) exceeds the threshold limit for the relevant financial year (Rs2.5 lakh for the financial year 2017-18).
Please note that as you and your wife are residents of Canada, there may be tax implications in Canada for the said transfer and income from the house property in India. In case of any double taxation, applicable benefits under the Double Taxation Avoidance Agreement between India and Canada may be explored.
Eligibility to obtain Aadhaar:
Under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, every ‘Resident’ is entitled to obtain Aadhaar number by providing his demographic and biometric information. The term ‘Resident’ has been defined under the said Aadhaar Act as an individual who has resided in India for a period 182 days or more in the 12 months immediately preceding the date of application for enrolment for Aadhaar.
Accordingly, there may be no requirement for your wife to obtain Aadhaar unless she stays in India for 182 days or more in the immediately preceding 12 months period.
From income-tax perspective, there is a specific exemption for foreign citizens on the requirement to obtain Aadhaar for income-tax return filing and PAN application.
Eligibility to obtain PAN:
Under the India income-tax laws, in case an individual has total income (i.e., gross income excluding the exempt income) exceeding the threshold limit for the relevant financial year (Rs2.5 lakh for the financial year 2017-18), then the said individual is required to obtain a PAN.
Accordingly, your wife may be required to obtain PAN in India in case her total income (i.e., gross income excluding the exempt income) exceeds the threshold limit.
Process to obtain PAN:
To apply for a PAN, your wife may make an online application (bit.ly/2wT4Jca) and send the signed physical PAN application along with the necessary supporting documents such as identity and residence proof to the PAN centre in India. The PAN card can be delivered to your address in Canada.
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Sonu Iyer is tax partner and people advisory services leader, EY India