How to build capital in wife’s name?

POSTED BY Ramprakash ON April 5, 2012 4:28 pm COMMENTS (11)

How to build capital in wife’s name?

I have 3 lac rupees which I wish to invest in low to medium risk instruments. Time horizon 5 years for 2 lac and 15 year for 1 lac. I am hoping every year I will have a couple of lacs to continue investing in my wife’s name. I am in 20% bracket and my wife has no capital and her income is Nil.

Now where should I invest so as NOT to envoke the clubbing provision.

I have gone throught the forums. And what I found as viable options were PPF and tax free bonds.

Now the question is, I understand the interest earned from the investment will be taxfree. But what about the capital (principal amount) on maturity.
Is this principal amount to my wife a loan or a gift? If both loan and gift are possible, which is a better option? What is the min. rate of interest at which I can give loan to my wife? And upon maturity should the original investment amount (principal) be returned from wife’s account to husband’s? Or if there are no issues if the principal amount continues to be in wife’s account and becomes her capital asset.

One more doubt. Why investing in shares or Mutual funds, if invested period is more than 1 year, is not an option.

I am not looking for options of gifting to relatives (parents, siblings) and they in turn gifting to my wife as a mode of building capital in wife’s name.

My main intention is not actually to save tax in 80c etc., but to save tax on investments. As per this years income tax slabs, 2 lac is exempt from income tax. This is what I want to utilize in my wife’s name.
Thanks in advance.

11 replies on this article “How to build capital in wife’s name?”

  1. Madhu says:

    Hi, this is old question, but I want to extend this.
    Let’s say i have given my wife 1lakh and she invested in mf, after 3 years let us say she got 1.5 lakhs. Now she withdrawn full amount and bought a land. Does this become legal. I mean if land is sold after 10 years, who has to pay tax, myself or my wife?

    1. It will be you . Because it was your money

      1. Madhu says:

        Thank you for clarity,
        So, if i gift money to wife, she can buy anything, but should not invest.
        If invested, returns will be clubbed with my income.

        1. Thats correct ! , But this money will come out of your POST TAX INCOME !

  2. Ramprakash says:

    Many Thanks Chakri & Ashal. Very detailed and to the point answers. Much appreciated.

    So my action plan invest in MF and PPF in my wife’s name.
    I should NOT give it on loan but a gift.

    One Final question: So do I have to create a Gift Deed for the amount I wish to invest in MF & PPF.

    I have already downloaded Gift Deed Template from Internet.

    1. Dear Ramprakash, even on a plain paper you may create your own gift deed of gifting amount to your wife. The points of importance. There should be clear information regarding

      Who is the donor? I, Ramprakash S/o …… aged …… address ……..
      Who is the donee? Mrs……… W/o……. aged……address……
      The amount of gift & instrument used to gift? an amount 3L Rs……. through the bank cheque no. …… dated….. of Bank…… or through NEFT Trasfer………
      Signature of Donor on the deed
      Signature of the Donee on the deed with a sentence I’m accepting the gifting…..



      1. Ramprakash says:

        Hi Ashal

        One more question. Since I am gifting the money to my wife, should the gifted money be 2 lac at max. so as to NOT invite tax at the hands of my spouse. I have mentioned 2 lac because upto 2 lac income is exempt from income tax.

        The gifted amount will be invested in PPF (1 lac) and Long term equity Mutual funds (1 lac).

        If I can gift more than 2 lac without it being taxable in the hands of my spouse, then I will look to invest 1 lac in PPF and 2 lac in Equity Mutual Funds.

        Many Thanks

        1. Dear Ram Prakash, there is no such limit for gifting from a husband to his wife or vise verse. You can gift any amount of your choice.

          Clubbing things are already discussed & as your wife ‘ll invest the amount into PPF & Eq. MFs, the income/gains from these investments ‘ll remain tax free in your name.

          No problem to gift 3-5-10L Rs. to your wife.



  3. Chakri says:

    Hello Ram,

    Regarding Loan to your wife it is not that suggestible, and more over gift from relatives or friends preferred. If you want to give loan to her, the income generated on it becomes her income, but the interest she pays you becomes your income. You can make a loan aggrement and she has to show [through bank statement] that she is paying the interest / emi to you on regular basis or else it leads the IT people in fraud angle. The interest rate can be moderate like 2% less than the current bank interest rates for that specific period.


  4. Dear Ramprakash, you may gift directly to your wife. The only important point to remember, invest in the instruments where the income is tax free. So you may invest in Tax Free Bonds, Eq. MFs, PPF but bank FDs are out of question as the FD interest is taxable & it ‘l invite clubbing provisions. In fact in case of PPF & Eq. MFs & Tax free Bonds, the section 64 clubbing provisions are still applicable but as the income is tax free, no worry for you.

    As you have gifted the money to your wife, it’s her capital now. Interestingly, the interest received from tax free bonds received by your wife & reinvested elsewhere even in taxable instruments, this secondary income generated from primary income ‘ll be taxable in her name only.



  5. Chakri says:

    Hello Ram,

    The invested principal amount is tax free in the hands of your wife and it will be capital for her, because you have already paid tax on that amount in the form of TDS from your employer if the source of the income to you is only salary. Now we will talk about the income generated from this principal, if invested

    1. Yes, you can invest in PPF, tax free bonds and in MFs (ELSS are preferred).
    Since PPF comes under EEE as of now not sure after 15yrs when the PPF matured.
    Tax free bonds and the income from MFs which are older than 12 months then they fall under Long term capital gains and again as of now no tax on LTCG.

    2. You can build capital by accepting gifts from her relatives, you pay them in other means instead of gifting them and also take the letter from that relative mentioning that he/she has given this gift with natural love and affection on your wife along with the cheque number, chq dt, bank and branch. Google for sample gift deed. You can make it on a simple plain paper and take a xerox of the cheque and file it for future purpose along with the letter.
    MORE IMPORTANT POINT : Your wife cannot accept gifts from you and your parents – The ITO will suspect in the angle of money laundering.

    3. Open an SB a/c on her name and ask her to deposit monthly Rs.5000 – 10,000 as her savings from the amount which she got from you to maintain monthly house expenses or you transfer Rs 20,000 every month to her account and ask her to spend for house expenses from that amount, if the expenses comes around 15,000 there she can save 5,000 and it will become her income because she wisely saved that income from monthly expenses. She can also say [if anybody asks her] she will also earn by taking tutions to the kids of various classes.


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.