Can You Save Income Tax by Transferring Money to Wife /or Husband's Account?
Do you transfer money to your spouse’s ( Wife / Husband) account so he /
she can meet personal expenses, does that money earn an income. Or do you
consider it loaned.
Let’s understand today, how the
income from such transfer is treated from income tax standpoint.
Money is Invested in Shares or /
Fixed Deposits or / other Assets..!
The shares may have been purchased in your wife’s name or / fixed deposits made in her account – but the
income from such fixed deposits / or gains from the wife’s shares transactions
shall be clubbed with your income.
As per clubbing provisions of Income Tax, this is considered as your own
income & taxed at slab rates applicable to you. Even if there are capital
losses from sale, those get added too.
Money is considered Loaned..!
There could be a situation where you have genuinely transferred money to
your wife’s account to meet her financial needs, for e.g. to help her start a
business.
The amount is considers loaned & is planned to be returned and
interest is charged as well.
In case you are charging a reasonable interest & also showing the
interest as your income in your return, income earned by your wife may not be
clubbed.
However, in cases where amount is shown as loaned to your wife & she
is investing that money in shares to earn an income, and thereby you end up
saving significant income tax by avoiding clubbing of income (gains) on shares,
it may be hard to convince the tax authorities about the lender borrower
arrangement, given the close relationship of the parties and the tax save
involved.
Usually in most cases - it's mis- used as a tax saving avenue and that is
what the tax authorities want to be careful of.
Only to meet Personal Expenses..!
When one of a couple is a home
keeper and is not earning an income, it is commonplace this person receives
some money to take care of personal expenses.
This has no income tax implication & is not considered an income in
the receiver’s hands.
However, any interest earned in the bank account may still be clubbed.
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