I have invested some money in Fixed Deposit in the name of my wife as she is not earning any income. Will she have to pay tax on this?
This is an innocent questions because of inadequate knowledge of Tax Provisions on Clubbing of Income and how it attracts tax liabilities. Let us see some Must know tax rules for Clubbing of Income.
Income of a minor child is added to husband or Wife's Income depending on whose total income is greater. So if Child earns Rs. 1 Lacs and Wife is earning 5 lacs and Husband is earning 4 lacs, then the income of Child will be added to Wife's Income and it will be 6 lacs of income for Wife and it will be taxed accordingly. Do you think you can live with 90% of your Salary?
If you invest money in your Minor Child's or Spouse's name then all the income earned from that investment will be clubbed into your own income. The main thing to note here is whoever is the original owner of money will be taxed on the income.
Exception: Income of a minor child shall not be clubbed and is taxable if the child is suffering from a disability (under Section 80U) such as physical disability, complete blindness or if he earns the income through manual work or any activity involving application of his skills or talent or if both his parents are not alive.
The compounded income is not subject to clubbing. Which means that the income arising from the income which is clubbed is not clubbed. So, if Ajay invests 30 Lacs in an FD in his Wife's Name, suppose the Interest on this FD comes earns Rs. 2.4 Lacs and the interest from this FD will be included in Ajay's income, but any income which comes from this interest of 2.4 lacs will be considered as his Wife's income and not Ajay's income and hence will not be clubbed back to Ajay's income. So if his Wife uses this Rs. 2.4 lacs and makes an income of 1 lacs from it, then this 1 Lac will not be considered in Ajay's income. Do you know How to find the Best Fixed deposit?
If you are a High Net worth Individual and your Spouse does not Work, you can make the investment on his/her name. So that the income which comes from the income arisen from that investment is at least not taxed.
Example : If Robert invests 50 Lacs in Stocks and Earns 20 Lacs, It will be considered as His income and Taxed and now if he invests this 20 Lacs in FD, all the Interest he gets is also taxed.
But If he Invests this 50 lacs on his Wife name, the 20 Lacs income generated will be taxed as his income, but then when that 20 lacs is invested in FD, all the interest coming from that will be treated as Wife income and If Wife is not doing anything, Her Total income will just be this interest, around 1.6 Lacs considering 8% interest and hence It will not be taxable at all as its below the limits.
Tax Clubbing rules do not apply when you invest money on some one's name before Marriage (only your would-be and Son-would-be, not your-friends-would-be). So Any income earned from that investment will not be clubbed within your Income.
Example : If Manish is going to be married (thanks you guys) and He wants to invest 20 Lacs in an FD . He can do a simple tax trick, He can invest this money on his would-be-wife name.
Now by doing so, all the interest coming from this FD will be considered as his wife Income and if her total income comes under minimum limit, She will not pay any tax on this. Where as If he invest this 20 Lacs on his own name or in his wife name after marriage, The interest will be taxed.
Clubbing Rules applies only for Minor Child's, It's not applicable for Children above 18th. So make sure your Investments on Child Name mature after they are 18th so that any income which arise from it is not your income. Read why you should open a PPF account even if you don't need it.
Example : So if you have a child aged 12 and you are planning to buy a Bond for 5 yr on this name, It will mature when child is 17 and hence will be taxed in your hand, better extend the Tenure by 1 yr and make it to 6 yr or 6.5 yr, so that The income arised from it is Child income and not taxed in your Hands.
Clubbing Rules does not apply for genuine Loans Given to your Spouse or Child. So instead of just Gifting some money or Doing investment on their name, give Loan to them which they can use to invest them self. All the income from those investments will not be clubbed in your income.
Make sure that you have a documentary proof of Loan, A simple letter of Loan with Signatures of both the party will be enough as Documentary Proof, no need to run for Lawyers for these.
If you have a Joint or Big enough Family, Its better to Create a HUF, so that then all the investment which are for whole family and all the assets which belong to whole Family are on HUF name, in that case HUF will enjoy all the Deductions and exemptions just like an Individual.
Knowing Clubbing of Income rules can help you in saving your Tax in different ways and Without the knowledge you may also loose many times. So better use these Tax rules to make best use of your situation.
Note: There are many exceptions and details in Clubbing Rules which are not covered here. These are just high level rules and not detailed rules. So please handle with Care.
Its always taxable for the GIVER ..
I had gifted my wife 2 lakh Rupees and she had 3 lakhs of her own.She invested all 5 lakhs in shares in year 2013 and lost 1 lakh Rupees. However since she was not earning any income she didn't file IT return. Now she has got IT notice with STT code for AY 2014-15. What will be the tax treatment for net loss from shares.
I think its more for not filing the return ! ..
(a) On receipt of above property would any tax liability on me instantly ?
(b) Second condition is that I would like to sale out above property after 7 year and further invest in residential immovable property, Would then be any tax liability on me. ?
My Father plans to gift me Rs. 1 lakh. I'm employed and earn ~Rs. 4 lakh. I wish to invest the money in stocks. Who will have to pay the tax, and what amount would needed to be paid?
My question is – Should my wife be filing return to carry forward the STCG loss or should I be using this in my tax return as carry forward loss ?
Manish your explanations and answers are simple to understand and superb, congrats.
sir i am in 30 percent tax bracket. my father is also tax payee.my father wants to give me a huge amount as gift .what will be my tax liabilities.
I'm salaried & fall under 30% tax slab. 1) I transfer Rs 5 lacs on my mother's name who is a housewife & has no source of income, in a bank account with me as the second holder & she as the primary holder. Then she makes a FD out of it where she is the primary holder & me as the secondary holder. She also fills the form 15 saying she has no other income apart from the interest on FD. Her yearly FD interest would be max Rs 45,000. Whose tax liability is this interest amount? 2) I transfer Rs 5 lacs to my younger sister who is a student & has no source of income, in a bank account where she is the primary account holder & my father is the secondary holder (father also retired & no separate income except FD interest). Then she makes a FD out of it where she is the primary holder & father as the secondary holder. She also fills the form 15 saying she has no other income apart from the interest on FD. Her yearly FD interest would be max Rs 45,000. Whose tax liability is this interest amount?
It will be your mothers!
If I gift my wife 2 lakhs and she deposits in an FD and earns an interest of 16,000/-, can she declare that as her income and pay tax on it instead of me?
But as per above Income tax rules we can make a paper that i have given loan to my wife and she is investing it further into FD and earning interest then i think i will not have any TAX liability on interest gained.
Still you will have to pay tax , if you gift money to spouse, income clubbing applies!
Say, I'm gifting Rs3 Lakh to my mother and she gifting the money Rs2 Lakh or entire Rs 3 Lakh to my Wife. And my wife invests in FD and earns Rs 30,000 in a year. Whether this Rs 30,000 will be taxed under my name or will not be taxed as it came from the her mother-in-law?
It will be taxes under your name, as the source of money is from you only .
My Husband & Sons Work in Merchant Navy (Tax Exempt Income), so if they gave me some money , does interest earned on FD will be mine or Clubbed, also my son gave me some money 2-3 yrs back , which i gave to my husband directly to pay loan amt. as he did not have job that time due to Heart problem, now my husband has given back that money to me , if interest is clubbed, how can i avail that money as it was given by my son to my husband loan A/c directly.
Thanks, but then majority of that money (FD) belongs to my son, which he gave directly to my Husband Loan A/c ,2-3 years back , & since he can avail a certain portion of interest as per his bracket (2.5 L), since his entire earnings is from NRE a/c , how can i differentiate , is there any means , by which i can proof that this money belongs to my son which he gave my husband , & now he is giving me back, does Loan A/c shows from which A/c money is recv., & can i avail or he avail if we have this in writing.
I fixed some money in my wife's name. Bank deducted TDS on it. Now how do I claim the credit for such TDS deducted in my wife's name? All her income is clubbed in my hands thereby she literally has no taxable income in her name. What is the solution as i cannot claim her TDS in my I.T return!
My mother (a home maker , no source of income) transfer 25 lacs to me. I use this money to buy a property worth 35 lacs . I take loan for the extra 10 lacs. Will i still be taxed?
I have gifted 10 Lakhs to my wife (not working). She invested it in Equity Shares. There was Net Capital Gains of 2 Lakhs. I clubbed the Net Capital gains with my owm income and paid Tax. Now, She re-invested the whole amount of 12 Lakhs again in 10 % FD and earned 1.2 Lakhs. I understand that the income from 2 Lakhs part will no longer br clubbed with my income. BUT, what about the income from the 10 Lakhs amount which was re-invested ? Is the interest from this portion to be again clubbed with my income ? Does this happen for all subsequent years forever ??
I have invested 10 lacks in my wife's name last yr and received around one lakh interest on it. This is reflected in her 26AS and some TDS also deducted.
She has other incomes also.She used to work before and has FDs on her name . All other FDs are her own money which she earned before. Can I declare the interest income which I deposited in her account without clubbing or declaring her PAN ?
I am in working (salaried) and paying taxes. I had applied for a plot under govt. scheme and paid the amount from my account for this.
However, I did not get the plot and for refund purpose I took the refund amount back in another bank account which is a joint bank account of me with my wife. My wife is not working and has no income.
I want to know will there be any tax issue in this while filing the income tax for my wife. Does she need to pay any tax on this?
On this money I had already paid the taxes.
NO , if you are primary holder, all taxation will happen on your name !
I transferred 150000 to my wife's account in Aug 2012 , she is a house wife. Made an FD out of it.
On every maturity since this the FD is auto renewed and the bank does cut TDS , for which I have statements too.
I am confused as to what to do now about 2014-2015 and 2015-2016 as I have never declared this FD.
Can transfer into a joint account with self as secondary account holder be considered as a gift to the primary account holder for tax purposes?
No I think thats not allowed !
I am a NRI. If transfer Rs 10 lakhs to my wife's account,who is in india without any income source and if she invest this amount in bank FD, Have we to pay tax?
I am in the 30% tax slab. My son is 22 and has no income. I have a joint account with him, he being the primary account holder. If I transfer an amount to the joint account and put it in an FD and the amount is such that the interest is going to be less than 1.8 lakh per annum, will I or my son be liable to pay tax either for the transferred amount or the interest?
NO , if its less than 1.8 lacs, then no tax !
Your article to so informative and useful your work is much appreciated.
Can you suggest me please!
I fixed some money on my wife's bank account. Bank deducted TDS on it. Now is needs to file Individual ITR for wife?
Or in In my ITR I can add her TDS details.
No , you cant add her TDS details for yourself !
Hello Manish, we have 20 lac.as FD in my wife's name in her bank accounts. Interest are coming monthly. All the major transactions for FDs were done through by my father in law's bank account. We have also income from house rent , legally property is registered with my mother in law's name.
I'm a free lancer, at present my major incomes are FD int. & house rents.
Previous year I filled ITR , as a income proof for submitting at my daughter's school.
So now this year is it necessary to show the incomes from my wife's FD s?
N:b: yearly all interests are not exceeding the limit. ( 2.5 lac).
No , in that case no tax comes into picture !
I live in US and file my returns over there. I plan to gifts Rs. 25 lakhs to my mother in India. She will deposit this amount in fixed deposit in her bank in India so that interest income can be used for the monthly expenses. Can you please advice who will pay the tax on the interest income, will it be clubbed with my mother's other interest income or will it be clubbed with my father's pension income.
Your mother will be paying income tax on that interest, which should not be there at all if she does not have any other income !
I gave 2 lacs to my wife three years before. She deposited the amount in her savings account . Now should I include the interest amount of 2014-15 as my income , this year also.
I have 40 Lakhs in my Account .. I have made that amount as FD. how to save tax on that . can i gift the money to my parents and wife , or can i make any investement ..
You can surely gift 20 lacs each to your parents, and if they do not have any income apart form the interest they will earn on this. Then tax is saved !
Suppose an NRI son gifts Rs. 10 lakhs to his mother in India. She deposits this amount in fixed deposit in a bank in India. Who has to pay the income tax. The son or the mother.
i am salaried with 4. 7 lacs annual salary.
my mother is family pensioner with 2.6 lacs annual pension.
i have fixed deposits in more than one banks , around 15 lacs on my name and around 5 lacs on mothers name.
i have education loan of 2.5 lacs taken before 3 years.
i live in rented flet and pay Rs.3500 as rent.
kindly guide me how much amount of tax i need to pay?
and how can i get benefit of various tax exemption sections to minimise tax payable.
waiting for ur kind reply..
Just this much info is not sufficient . I think you need to have a good personal CA for this . Do you need a CA contact ? With some basic fee all your filing + computation will be done !
If I transfer money (say 5L) to my mother and she purchase guaranteed return shop in her single name (adding her 4L).
For remaining amout I take bank loan as financial guaranteer, she is main applicant and i m 2nd borrower.
Now she is getting per month return and pays emi for bank loan part from that income.
how will tax thing work in this case.
I hope this case shall help many decode tax angle for such case.
For above case, please also note that mother is family pensioner.
Who ever is having there name in the shop , they will be paying the tax later when you sell it .
Dear Manish, i have a query. my wife is not having any source of income and i recently applied for her PPF account. If i deposit 1 lac in her PPF account either by transferring amount first to her saving account or directly by cheque or cash, will i be liable to pay any tax on this amount?
If I, my father , my mother transfer an amount >50,000 INR to my wife and she invests from that amount the income earned is taxable to me / my father/ my mother respectively , however if I transfer the same amount >50,000 INR in an year to my brother in law and he then transfers it back to my wife … then the implications per me would be no gift taxable for my brother in law and also no gift taxable to my wife (both being received from relatives) and also the provision for clubbing is not applicable (sec 64 i mean). is that right ??
Only some relatives are allowed for full exemptions . I am not sure if your brother can give full money to your wife or not .
Sorry I am asking the same question again which many have asked.
I want to loan/gift some amt to my wife (no income source) say 5 Lacs. She does a FD of this amt for a year. I understand that the interest amount on this shud be added to my income & taxed which I will pay. I wud also add this 5 Lacs to my income (only for 1st year) & pay tax on it, I am not reducing my taxable income by this amt as I have gifted or loaned it to her. If the interest is re-invested by her in another FD, the interest from that wud become her income and she may not need to pay tax for same as she doesn't fall under the tax bracket. I continue to add only the interest on the 5 Lacs to my income every subsequent year and pay tax for it too. She takes out this interest amt & makes a new FD. In this way, only the interest amt of this 5 Lacs every year wud become my wife's income which she may re-invest in FDs (and not pay tax unless it becomes that big that it starts following in a tax bracket). Is this justified? This way I am not evading any tax and making the interest amt as my wife's income & thus tax free till it comes in tax bracket.
Yes, thats legal and allowed .. you can do that !
Mr. X has 3 children(all minor). He made separate FD's for all children.
Each child has his own PAN card. Now how should I treat the income arising from interest on FDR with children and how will be the TDS on these FD's will be treated?
1)Will it be justifying to save tax if anyone lend some money to her wife (say Rs 5.0 lacs) giving reason that this is to meet her miscellaneous expenses from the earned interest?
2) What may be the maximum amount and no. of times a person can lend money to her wife (house wife) in this way?
One can not save tax on MONEY which is GIFTED 🙂 . Only the person who is GETTING it does not have to give any tax ..
I read from jagoinvestor whenever i get time, and every time i do it. I just keep getting hooked to it and loose track of time, from one link to other. Kudoos Manish.
It is really odd to know that when you gift money to your wife and she uses it to make money, you get taxed on the income from it.
Question for you: I give Rs. 1 Lakh to my wife as gift. Which my wife in turn gives it to her Borther as gift and then again my wife brother returns it to my wife as gift. Now all the transactions are clearly un-taxable as per your article. (a) Is this legal? (b) Can now the income generated from the money by my wife be not clubbed into my income.
1. First point is that you need to understand that if you gift money to make sure that you avoid tax , then no matter what is the way of gifting , its invalid.
If you have Rs 5 lacs, if you keep it with yourself any income arising out of it should be liable for tax . Now if you transfer it to someone just with the intention of saving tax, its not allowed.
In any case, think of it like this, if the tax inspector sits in front of you to enquire for things, will you be able to handle it genuinely ? If yes, go ahead and do it , else be ready to face it !
so what happens if my father (10% tax bracket) has 5 L and transfers it to my account (currently no income, jobless) and then I transfer it to my mother (housewife with no income) and she invests it in NSC, then who will be bearing the tax on income arising out of NSC?
Clearly its the same thing as husband transferring to wife through you . I mean though its not the intention , but still its like that only . so technically your father should pay tax . The point here is , if tomm a tax officer claims that father transferred money to wife through son account to avoind tax (imagining if he had invested it himself), can you defeat him in debate ?
True… it will complicate things and put me and my mother open for barricade of questions for IT ppl, specially in case they interrogate after 5-7 yrs later than the actual transaction. Anyway, Thanks Manish!
giving my wife some amount through cheque /net banking to her bank account as a gift or for any other reason,want to know the consequences,how taxation can be avoided if can be.
If I transfer Rs. 5L in my father's account as a gift. Then if he invest it in NSC with two names, his first and second as a mine. Then how about the income tax application on the interest received ?
If I deposit every month Rs 50000 in my wife's account and in turn my wife invest this amount for FD then what is the tax applicability for me and my wife.
You need to file ITR for your wife first. Don't make any unplaneed transfers. Please ask for advice of a legal practitioner.
1) If A' relative gift money to –> B'Relative and B' relative gift to C'Relative. And if C Earns Profit then who's income is Taxable A or B.
Who are A and B here ? Are they related ?
I am a salaried person and have FDs of 1lac,50k,50k on my wife's(housewife) name in two banks having iterest less than 10k.
1.Do I have to include this interest in my income for tax calculation?
4.Are Gold Funds/ETFS and equity funds are taxable?I am planning to have one on my wife's name.
3. If you are the source, then its your income , simple !
4. Gold funds will be taxble , but equity funds wont be after 1 yrs !
Although this article dates back to 2009 but are these tips still applicable. Especially #4. My wife is a school teacher and has her own salary account. I am in 30% bracket and she is in 10%. I have around 4 lacs with me. Can I transfer this to her salary account as a loan and then have a FD on these 4 lacs.
Who's income will the interest be added? Pls advise. Thanks !
It will still be considered your income , any restructuring done purely for saving tax will not work .
Dear Rsingh, if you indeed want to invest this 4L Rs. amount, please loan to her @0% & then invest the amount into Eq. MFs under her name. As you are already aware, the Eq. MFs are tax free for more than 1Y holding, your wife 'll earn tax free return (if any). Yes in this case, be ready for a loss also if market turns negative.
Through, FD you can not acheive what you are trying as the income from FD is taxable & clubbing in your name 'll not serve the purpose.
The more simple answer to your question is that, you can file ITR for your wife showing her income from home tutions and depositing cash to your wife's bank account and file ITR for two years as suchh then this way you will succeed in tranferring 4 lacs to your wife legally and then can make FDR.
ITR 4 will be applicable.
If I gift Rs. 10 lacs to my hubby and he invests it in FD for one year (interest say 95,000) and after a year he renews the FD for another 3 years, I understand that interest on FD in the first year (Rs. 95,000) will be clubbed with my income and any income arising from 95,000 from second year onwards will be treated as my husband's income but how should I bifurcate between my income and husband's income from this FD from second year onwards (i.e. Principal on renewal is say 10,95,000 and interest thereon in 2nd year is say 90,000)?
No you can gift the money like this to your spouse and seperate the incoem , it does not work with spouse and minor child .
This income tax clubbing has really become a problem for me and my family because we still haven't figured out how it works. My son is only 16 but he and I conduct tuitions at home and we already earn around 25-30K a month solely on that. My wife conducts specialty cooking classes and also has a beauty parlour at home and earns about 15K a month. Now how am I supposed to include all this in my returns?
I invested some FDs in wifes name who is housewife. Interest for current FY shall be more than 10000/- . If I want to add this income to my total income and pay tax accordingly it may lead to double taxation as TDS will be deducted also against my wife's PAN by the Bank. Again she cannot submit 15G as the interest income is intended to be added to my income. So. either I have to evade tax by submitting 15G or pay double tax (I fall within 20% tax slab) if I honestly do so.
Another thing I have thought of. I can show the interest in my income by reducing it in such a way that TDS amount is adjusted and total tax paid rightly.
Please share my idea and give your valuable advice.
The best thing would be to ask for refund this time and from next time , better make more than 2-3 FDs in such a way that no one account has more than 10k interest !
Hi, I gave 5 lacs to my father in 2008 and booked FD in his names. He has been earning intrerest since then and filing his income taxes as he is below tax limit. Now, I am transfering that money back to my account. Will there be any taxes ? Can I show that as zero interest loan to him ?
I have been reading your blog from quite some time now…You are doing a really great job.
My parents have transfered Rs.7 Lacs to my account & I have been investing their money along with mine in the derivatives market & earning a decent profit of 4-5% every month.
What is the income-tax implication on the money given from my parents account into my account & the income generated through that money. Should i show it as a gift or as a loan from my parents.
I will repay them the entire money with say 20% interest within 2 yrs from now.
Thanks 4 ur immediate response. I am showing this as loan & will repay this in 2 yrs.
Is just writing it on a plain piece of paper and with my parents signature enough ?
Manish, If in this case, i use this 7 lacs to clear some of my loans (such as house loan). Will there be any tax implications on this, if i show this money as gift from my parents?
If you can show that the money you got (7 lacs) is gift from your parents, then you dont need to pay the tax on that amount !
Yet an another example of how corruption begins with Indian Taxations. Income clubbing happens to be a legalized form of corruption by the government.
What we put in wife's name is POST TAX, that is tax has already been paid for the income and the remaining becomes our savings.
Tax department treating what is already taxed and then given to loved ones as a "Evasion" is – just another unfair means for extraction.
Several countries allow joint filing of incomes by husband-wife couples. It is not the case in India. Shame that one has "loan" to a spouse. The closest equivalent for joint filing is Hindu Undivided Family.
The Family is already breaking up in India, and of course we have a tax system that only favours such break up.
The tax system has another form of corruption – Advance Tax. Tax which is for the financial year is collected in advance even before the year completes – while refunds are not given upto several years.
For a government ridden with scams, there is a Tax system that sure favours even more to come.
Or can one say he is gifting it on the occasion of the marriage of the person he himself is marrying?
I understand we can give gifts to parents, children above 18 yrs and to siblings without breaking any provisions of clubbing of income. What say?
My wife who is a house wife, has PAN card and demat a/c in her name. I want to give loan to my wife so that she could invest in shares and mutual fund. It will be very kind of you if you could provide me the Format of giving loan.
I dont have much idea on this , however , you need to just write it on a plain piece of paper and signature .that is enough .
Thanks Manish for the quick response, Thats looks good to me. Is there a minimum percentage(SB retrs) for the loan or can it be zero pecentage also? And how can I go about it to make it legal(stamp paper/notary etc)… Thanks in advance..
Even a written statement on piece of plain paper with signature would be legally binding ..
I am not sure if there is any minimum percentage you have to use .. but i think you can put some 3-4% atleast .. just that it will be then added to your income and be taxed ..
Nice article. Any income generated out of the money gifted by me to my mother, will it be clubbed to my income and taxed or will it be clubbed to my mother's total income and taxed(if applicable)?
it will be added to your income .. so better show it as "Loan" ..
This article is very useful. But, I have one doubts. You said one can invest in would-be's name. But, how you can give that money, is it a gift?
.-= Krishna´s last blog ..SBI Reduced Term Deposit Interest Rates =-.
yes , through a gift deed .
Ahh .. I think you are correct .. I was suppose to write about Bonds or some other thing there , FD will be a wrong product there .
thanks for the mention .. I will change it ..
It needs a lot of work to manage taxes in this manner. Very helpful. Usually people get so used to investing in one form and following a set pattern with their money they don't actively manage their money and taxes. Simply written.
Example : So if you have a child aged 12 and you are planning for a 5 yr on this name , It will mature when child is 17 and hence will be taxed in your hand , better extend the FD by 1 yr and make it to 6 yr or 6.5 , so that The income arised from it is Child income and not taxed in your Hands .
Incase of an FD even if the accumulated interest is paid at the maturity time, its my understanding that you have to pay tax for provisional interest earned.
I am sure this is the case atleast if the FD is opened on your name (not your child's name), if the provisional interest accrued for the financial year needs to be taxed. Infact the banks will detect TDS if it crosses the threshhold (it was Rs 5k earlier and now its Rs 10k starting this AY).
I think this is because the interest acrrued is used as principal for next term for interest earning compounded interest rate.
This depends on the bank you are opening the FD in. For example, SBI, ICICI, etc. calculate interest (and deduct TDS if applicable) on accrual basis. However Indian Bank treats the full interest as earned only on maturity and includes no interim interests in their calculations.