Have you ever transferred money to spouse’s account in order to meet her personal requirements and expenses? If this thing happens very often, then you need to know few things related to the Indian taxation system. It is very important to know in this matter, whether the transferring money to spouse’s account is considered as income or loan or something else. By this initiative, can you save the tax amount, imposed upon the money transferred to your spouse’s account? If yes, then what is the highest saving percentage? Overall, a lot of things need to be clarified from the income-tax point of view and the relevant consequences of such money transfer.
Money can be invested in fixed deposits, shares or in other assets:
If you purchase a share in the name of your spouse or keep some money as fixed deposit in her account, then the income from that amount of fixed deposit or gain from the transactional amount of money will be clubbed to your income. Because it is being considered as the part of your income as per the rule of income tax and the taxed amounts at the slab rates are only applicable to you. In addition, if the capital losses occur from the sale, the respective amount is added as well.
When the transferred money is loan:
It is definitely possible that the amount transferred by you to your wife’s account will be considered as a loan. However, you may transfer it to meet her regular expenses and financial requirements, but the amount is being termed as loan and needed to be returned along with the charge of interest. On the contrary, if you are charging an acceptable amount of interest and showing it as the source of income, then the money earned by your spouse from the same source will not be clubbed.
While the transferred amount of money is specified as a loan to your wife and consequently she is investing this money in different shares for earning income, you can save a significant amount of tax by preventing the clubbing of gains or income on respective shares. Nonetheless, it is quite tough to manage the tax department regarding the lender-borrower arrangement by showing the close relationship with other parties in order to save the allotted revenue or tax.
To meet the requirement and personal expenses:
While a person (husband or wife) is not earning money and fully dependent on receiving money from the other end to meet the personal expenses and to serve the regular demands is a common practice. The receiver end is free of income tax implication. Nevertheless, the saved in the bank account due will be clubbed surely, if the earned income by her exceeds the maximum limit of applicable charges. But in case, she is saving money regularly from the gifted amount and starts to deposit that extra money to the definite bank account and thereby gains more interest as well, then the respective amount of income will be clubbed directly with your income again.
The compatible circumstances for clubbing:
Transfer of income:
If you are the owner of an asset but you transfer the amount of income from the asset by a proper agreement, then this act is still considered to produce income for you. This transferred amount is treated as the part of your annual income and comes under the tax implication.
Transfer of asset:
The transfer of the ownership of an asset can generate income for you. It can be added to the overall calculation of annual income even if you make the asset transfer revocable.
Clubbing according to income tax act:
According to the regulation of income tax act, the interest on fixed deposit is also being considered as the income source. The bank authorities generally come under the income tax act and they are mandated to cut down TDS from the interest source of fixed deposit when the amount crosses the limit set by the income tax authority. Basically, the tax will be subtracted by the bank directly at the source. It is to be noted that the tax rates have to be accrued per income based on the tax slab of every individual. It depends on the overall annual income of that individual.
The tax rate can be implemented on the income, sourced from the asset transfer to spouse according to the provisions of income tax act. Thereby, it needs to satisfy the following conditions such as,
- The specified taxpayer is must be an individual
- The transferred asset should not be any house property
- The asset transaction is done without ample consideration
- No agreement should exist between husband wife to live apart
If the above conditions are satisfied, the raised income from the transferred amount is supposed to be the tax prayer’s property. The rules of clubbing depict that the income accumulated from fixed deposits in the name of your wife can be clubbed again in order to collect the tax from your income. It means if you transfer the amount to your spouse’s account as fixed deposit, the process of taxation will be applicable to the original owner of the money. The income out of the clubbed conditions is considered as compounded income. Though, the compounded income is not permeable to the owner’s income in order to implement the taxation rules.
For the individual, who is living abroad and transfers the saving to his wife is out of the tax implication. The transfer of money from NRE account to your spouse’s account can be considered as gift or loan. In any of the above-mentioned cases, it cannot produce any income for her. Therefore, no tax regulation will be applicable to you or your wife. So every time, you intend to gift some money in the bank account of your beloved wife, take care of income tax regulations and implications and proceed accordingly.