Can Tax be saved if invested in the name of non earning spouse?

POSTED BY swapnil.kendhe100 ON January 9, 2014 1:22 pm COMMENTS (5)

I checked on net. I found that “If you gift money to your wife , there is no tax implication. However if this is invested, the earning will be considered as the persons income for the year”

But I also found that “The clubbing happens only at the ’1st level of income’, If this money is reinvested and earns income, it will be considered as wife’s not the person’s income”

How this 1st level of income is defined?

What is time minimum time horizon of this 1st level of income?

Sincerely,
Swapnil

5 replies on this article “Can Tax be saved if invested in the name of non earning spouse?”

  1. swapnil.kendhe100 says:

    Thank you very much Ashal.

    Sincerely,
    Swapnil

  2. ashalanshu says:

    Dear Swapnil, let me try to give you an example here. Say you gifted 1L Rs. to your wife and she invested it in bank Fd earning 9% which is 9000 Rs. in first year. Now this 9000 Rs. is your income not your wife. FD is still intact or renewed for 1 more year. Now interest is 9810 Rs. Here 9000 Rs. is again basic interest and taxable under your name. 810 Rs. is your wife’s income and taxable under her name.

    Thanks

    Ashal

  3. swapnil.kendhe100 says:

    Dear Manish/Jibi,

    Thank you very much for your reply.

    Will the interest earned on whole amt.(principle + interest earned at 1st level) be considered spouse’s income or only the interest earned on the interest?

    I would also be really very happy if i can get to know “what is the time horizon/limit imposed on the realisation of 1st level income”.

    Sincerely,
    Swapnil

  4. jibi says:

    Hi Swapnil,
    The 1st level income is the income received from investing the gifted money, say by way of bank deposit, and this will be clubbed with your income for tax purposes. However, the 2nd level income i.e the income received by investing the 1st level income (interest on interest) is purely the income of your spouse and will not be clubbed with your income. I am unsure of any time horizon/limit imposed on the realisation of 1st level income. It is a good question to be answered by experts!.
    Rgds,
    jibi

  5. Swapnil

    First you need to understand that any GIFTING which is with the intention of saving tax , will not work . Just because you want to save tax, you cant gift it to wife so that you dont have to pay the tax. If your wife earns and falls in the same bracket, then you can gift because then govt will not face loss of tax .

    Manish

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