Save Tax by Transferring Money to Wife's Account?

 

BY: Pankaj Bansal , Founder at NewsPatrolling.com

Transferring money to your wife’s account to save taxes can be a legitimate financial strategy, but it must comply with the tax laws of your country to avoid legal complications. Here's how it generally works in India:

Key Points to Consider

1. No Tax on Transfers to Spouse
• Transferring money to your wife’s account is not taxable for either of you. However, the income generated from the transferred amount is subject to specific rules.
2. Clubbing of Income
• Under Section 64 of the Income Tax Act in India, any income earned by your wife from the money you transferred (e.g., through interest, rent, or investments) will be clubbed with your income and taxed in your hands.
• Example: If you transfer ₹10 lakhs to your wife, and she earns ₹1 lakh as interest, that ₹1 lakh will be added to your taxable income.
3. Gifting to Wife
• You can gift money to your wife without incurring any tax liability for the transfer itself. However, the income generated from the gifted amount will still be clubbed with your income.
4. Investments in Her Name
• If your wife invests the money in a tax-free instrument like Public Provident Fund (PPF) or tax-exempt mutual funds, the income from those investments will not be taxable, helping save on taxes.
5. Separate Income Sources
• If your wife has separate, independent income sources (e.g., from a job or business), income from those sources is not clubbed with yours.
6. Tax-Planning Strategies
• Instead of transferring large sums to your wife, consider gifting money to adult children or other relatives who have a lower tax liability.
• You could also invest in your wife’s name in tax-advantaged instruments like PPF, Sukanya Samriddhi Yojana, or other schemes that offer tax benefits.

Best Practices

• Documentation: Keep proper documentation for any money transfer or gift to avoid scrutiny during tax assessments.
• Consult a Tax Expert: Tax laws are complex and vary based on individual circumstances. It’s advisable to consult a tax advisor or financial planner to align with compliance requirements.