How your wife can help you save taxes?

We all want to save taxes and thankfully we need not look too far. Did you know your wife can help you save your taxes?

Income Tax Clubbing Rule:

If your wife has no income and you invest in her name then the income earned on such investment is clubbed to your income. This is popularly known as clubbing rule. But there is more to it!

If you invest in your wives name [or gift her money and she invests] such that the income received is tax free, then it’s clubbed to your income but naturally not taxed. And if this is reinvested further, it is treated as your wife’s income and not clubbed to your income.

How your wife can help you save taxes
How your wife can help you save taxes?

Tax Free Incomes:

Here is a list of investments which you can consider for tax free income:

  • Interest received from Tax Free Bonds
  • Dividends and Inflation indexed capital gains from Debt mutual Fund & MIPs & Balanced Mutual Funds
  • Dividends and long term capital gains  (this is taxable as LTCG from April 1, 2018) from Equity oriented Mutual Funds and Stocks

Also Read: 25 Tax Free Incomes & Investments in India

An Example:

Suppose you gift your wife Rs 1 Lakh which she invests in HUDCO Tax Free Bonds in her name. The interest rate is 8%. So she would receive Rs. 8,000 tax free at the end of Year 1 and every year there after. This would be clubbed with your income but since the income was tax free, it would not attract any tax.

She can invest this Rs. 8,000 in bank Fixed Deposit @ 10% per annum on her name. Now the interest paid on this FD will be considered her income and not clubbed with you. So, she would receive Rs. 800 every year [as individual income up to Rs 2 Lakh is tax free] on her investment of Rs. 8,000.

In case you had everything on your name and you were in the highest tax bracket of 30%, you would have got Rs. 554 only [instead of Rs. 800]. Though this amount appears small but in the long run and better yielding investments can save you a good amount of tax.

Also Read: How are your Investments Taxed?

Added to this your spouse would be happier as this would give her a better control on finances and a sense of financial security.

50 thoughts on “How your wife can help you save taxes?”

  1. I have a query ,

    Money gifted from grand parents to my child some money .I planning to fix deposit on my childs name and wife as nominee.She is a house wife.Do we need to pay the tax on interest earned on the FD ,if the interest is more than 10k?
    Will the income taxed to me ? could you please suggest .If I wont be taxed I want to only wife as nominee.

  2. My wife have some very old money in her account (no pass book exists) and i have not transferred any funds to her account. She have some shares also earning dividend and LTCG. Otherwise she is non earning member and dependent on my income (salary from PSU) and availing medical facilities benefits. Whether her interest and LTCG incomes need to be clubbed with my income.

  3. If I transfer amount to wife’s bank account and if she invest in SIP (Mutual Funds) all growth plans.
    Is the total income received after selling of MF after 3 year is clubed with my income or is it treated as her income.
    Please explain with example

    1. The capital gains would be clubbed to your income. Before LTCG came into effect this was good way to transfer money to wife!

  4. Hi. I have a query.
    My wife is homemaker. If i transfer money to her account and she invests it to buy land, will it be taxable to any one of us?

    1. Any income generated from land would be taxable to you. Just investment in land would not lead to any taxation for you or your wife.

  5. I have a query.

    I have transfered some funds in my wife’s name which she kept ad FDR in Bank. She is not in tax paying bracket whereas I am. Now whether the interest she earned on the fDRs will be clubbed to my income?

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