Tax Saving Tips (Image: Patrika)
People try various methods to save income tax. One such method is transferring money to their wife's account. Does this actually save tax, or does it pose the risk of falling into a new tax trap? Is it permitted under income tax law? What is the correct way if a husband wants to transfer an asset to his wife? Additionally, we will understand how a husband and wife can plan to save tax together.
If a husband transfers money to his wife's account, it is permitted under income tax law. As per the IT Act, there is no tax on the money received by the wife. This means a husband can transfer any amount of money to his wife's account. However, this does not mean that tax will not be applicable in any way.
Income tax law states that if a couple transfers an asset to their spouse, and any income is generated from that asset, then this income will be clubbed with the income of the person who transferred the asset. This is called the clubbing provision under the Income Tax Act. Tax will have to be paid on this according to the tax slab. In this case, if a husband transfers an asset to his wife and it generates income, the husband will have to pay tax on it, as this income will be considered the husband's, not the wife's.
If, after transferring money to his wife's account, the husband makes a fixed deposit in his wife's name or invests in shares, will the wife have to pay tax on the returns generated? The answer is no. In such cases, any returns or income will be clubbed with the husband's income, and he will be liable for the tax. If there is any loss from this investment, it will also be adjusted with the husband's income.
If a husband transfers a property to his wife, no immediate tax will be levied. However, if any rental income is generated from this property, the clubbing provision will apply. The rental income will be added to the husband's income, and the tax liability will be the husband's.
If a husband buys a property with his money but gets it registered in his wife's name, any capital gains realised upon the sale of that property in the future will be added to the husband's income as per clubbing provisions, and the tax liability will be the husband's.
If a husband regularly transfers money to his wife, who is a homemaker, for household expenses, no tax is levied on this. However, the tax liability on the interest generated from keeping that money in the wife's account will be the husband's.
So far, you have understood the provisions if a husband tries to save tax by transferring assets or money in his wife's name. When tax will be applicable and when it will not. In such a scenario, is there no way for your wife to help with your tax savings? Absolutely, there is. Understand below –
Under Section 112A, tax exemption of up to ₹1.25 lakh per year can be claimed on long-term capital gains (LTCG) from equity shares or equity-oriented mutual funds. This exemption can be availed by both husband and wife by jointly investing in shares or schemes. If the gains exceed the limit of ₹1.25 lakh, tax will be levied at 12.5%, along with surcharge and a 4% cess.
When a husband and wife are joint owners of a property and also co-borrowers of a home loan, they can both claim separate deductions. This provides double tax savings for both. For instance, under Section 80C, both can claim ₹1.5 lakh separately on the principal amount. Under Section 24(b), they can claim separately on interest up to ₹2 lakh.
Under Section 80D, an individual can claim up to ₹25,000 for health insurance premiums. If the health insurance premium is higher than this, both husband and wife can purchase policies in such a way that they can maximise tax savings by utilising this limit fully.
These are broadly some of the ways through which a husband and wife can save tax together. However, it is not true that tax savings can be achieved through financial transactions between husband and wife. A proper investment plan is required to save tax.
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