If money is transfered from husbands account to wife’s account, does it become her income ie does she have to pay incometax on that? what if that money is invested by her ?

POSTED BY avi ON January 8, 2011 6:01 pm COMMENTS (11)

Hi Guys,

WISH YOU ALL A VERY HAPPY NEW YEAR!

Its been long since i visited the forum, but now that i have settled  down, lets start learning again.PLease resolve my query.

Regards,

Avinash

11 replies on this article “If money is transfered from husbands account to wife’s account, does it become her income ie does she have to pay incometax on that? what if that money is invested by her ?”

  1. Rahul says:

    Hi,
    3 years back, I had closed 3 of my ULIP Insurances. Insurance companies had transferred the settlement amount of my bank account. I then issued a cheque to open FD account in name of my Wife (who is a teacher). Duration of these FD were 3 years and about to mature in month of August. For these 3 years, I have been filing ITR on behalf of my wife which includes the Interest earned every year from the FD as other source of income. The Maturity Amount of the FD will be direct transferred to my Wife’s account.
    I need your expertise to help me understand the outcome of below scenarios on my ITR
    Scenario I: What happens if my wife returns me the Initial Amount which I had given her to open the FDs and she keeps the Interest Part of the FD.
    Scenario II: What happens if my wife returns me the Initial Amount which I had given her to open the FDs and she loans me the Interest Part of the FD at nominal rate of 8%.
    Thanks & Regards

    1. For first scenario , she can keep the interest part and use it further to invest and all the money will be treated as her own .

      For second case, I am not very sure !

  2. kesavan says:

    Hai guys,

    I have a doubt I am earning 16000 per month so i have no income tax as well as my wife also earning 16000 and that money is transferred to my salary account every month so total amount of 32000 will be credited in my account if w are taking this 32000×12= 384000 my doubt is i need to pay income tax my wife’s salary transferred will be treated as income? please kindly replay

    1. Yes, all will be treated as your income only. How will you prove that half of money was your wife income ?

      Dont do that from next year and let it be in your wife account

  3. Gaurang Desai says:

    I think one can treat the transfer to wife’s account as interest free loan and whatever income she gets by investing that amount would be taxable as per her income slab.

  4. Chakri says:

    Avinash & Manish,

    I found bit useful info on clubbing and how to avoid it.
    1. “http://www.moneycontrol.com/news/tax-expert/findingway-around-taxclubbingincome_210421.html”

    2. “http://www.rediff.com/money/2008/mar/12tax.htm”

    Thanks,
    Chakri

    1. Chakri

      thanks , I will go through that and learn more !

      Manish

    2. Avinash Borse says:

      Chakri,

      Thanks a lot , will surelly chk it out.

      Avinash

  5. Chakri says:

    Manish,

    Thank you, and thanks for the links.

    Here in this case how they will differentiate the source for investment by spouse is from her income or from the better half? So, I believe if invested spouse income or source of income is not enough for this investment then the source of that invested amount will be taken into consideration as income from better half and the interest from that investment will be clubbed to the donor.

    I’ve few doubts on this but wd like to create separate thread so that the title will attract the experts along with you 🙂 to provide your suggestions.

    Thanks,
    Chakri

  6. Chakri says:

    Avinash,

    I believe it will become income for her and if her total income including this is beyond taxable income then she has to pay tax on it. If she invested that amount and the main source of income for that is from your amount then the interest will be clubbed to your income.

    Thanks,
    Chakri

    1. Chakri

      It does not work that way .

      The clubbing rule will apply in this case , as the source of money is husband , whatever interest arises out of this money will be clubbed with husband income .

      If one wants to avoid this situation , the husband will have to Loan the amount to wife and charge appropriate interest on it.

      See : http://qna.economictimes.indiatimes.com/Taxes/Income-Tax/i-read-in-newspapers-that-grown-up-sons-and-daughters-are-great-tax-savers-for-you-and-that-we-should-gift-them-and-save-tax-if-i-gift-a-sum-say-rs-20-000-to-my-married-daughter-then-in-what-way-and-under-which-section-can-i-benefit-449570.html

      AND

      https://www.jagoinvestor.com/2009/09/what-are-income-clubbing-provisions-and.html

      Manish

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