Need Suggestion

POSTED BY Surekhabhanu ON January 23, 2012 12:22 pm COMMENTS (6)

Hi Friends, I need some sugession on the following case.

A 72years old Husband wants to do some Fixed Deposits and other investments in his wife’s name (63years).

As I understand in this way eventually there will be a clubbing of income where the husband will be liable to pay the tax. 

If I am not wrong husband can give loan to wife with some minimum or zero interest to avoid clubbing of income. 

1. Can some one guide me how exactly this loan option can be exercised..?? 

2. Is there any Loan agreement to be made..???

3. Is the Loan agreement to be notarised or registered..??? 

4. Since there were few investment has already been done during June-Dec 2011 in wife’s name, can those be included in the loan agreement or there should be separate loan agreement for new investment and another for those investment which has already been done..??

5. Is there any specific format of loan agreement (please share)   

6. What is the max amount of loan and what is the max term of the loan..??

7. Is there any alternative option available to avoid clubbing of income in this case..??

Thank You

6 replies on this article “Need Suggestion”

  1. Surekhabhanu says:

    Thank you Ashal

  2. Dear Surekhabhanu, yes husband may give zero tax loan to wife but normally income tax people dispute such transactions, so be prepare to clarify or fight it out for the same if in your own case Income Tax people take the similar stand.



  3. Surekhabhanu says:

    Dear Ashal,

    This is exactly what I was asking for.. Now m clarified.. But a last doubt..:-) If husband gives 0% interest loan to wife, then.. so entire 10% will be treated as wife’s income and taxed according her tax slab only.. right..????? and husband will not have any tax liability on the same (0% interest income i.e. nil)..right..???

  4. Dear Cureboybhanu, Let me clarify –

    if the transfer is a gift one – the investment should be done in instruments having nil tax liability as discussed above.

    If the transfer is a loan one – The interest paid to husband ‘ll be his income & the taxable gains/income from the investment ‘ll be taxable in the name of wife adjusted for interest paid out to husband. For example – investment is done in 10% FD & loan interest is 4%, in this case, 4% interest ‘ll be taxable income of husband & remaining 6% ‘ll be of wife.



  5. says:

    Thank you Ashal for your response, but still m unclear.. As you indicated “if the investment is made in the instruments where the income is taxable say FD, Debt fund, Gold etc, the clubbing provisions ‘ll be there.” that means even if Husband gives loan to wife (her income below tax bracket) with proper loan agreement also and if there is any income out of the loan amount invested in wife is clubbed to husband’s income ??? Is this what you mean to say..???

  6. Dear friend, if the investment is made in the instruments where the income is taxable say FD, Debt fund, Gold etc, the clubbing provisions ‘ll be there. On the other hand, if the instruments are the ones having tax free income say PPF, Eq. MFs for more than 1Y holding, Direct Eq. for more than 1Y, dividends from shares & MFs, the clubbing provisions are toothless.

    So first of all, please distinguish the investments on the above parameter.

    Regarding the other questions, a simple agreement on a plain stamp paper of say 50 or 100 Rs. ‘ll do.

    As the loan documentation is done, all the transactions should be done either though cheques or netbanking.



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