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?
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.
Here is a list of investments which you can consider for tax free income:
Also Read: 25 Tax Free Incomes & Investments in India
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.
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Amit ji, In the beginning of the month I give my wife certain amount to run the family expenses. At the end she saves some amount and deposit in her name as a recurring deposit. Will that rd interest earn will attract income tax from my side?
Technically the money is yours and so any income on the same would be clubbed to your income (assuming that your wife has no other income).
However if the amount is small, IT department can take a lenient view and may not bug you with the same.
Dear sir
If I invest in a bank FD on my wifes name, eran the interest which is TAXED in my income, Now this incomes is used to invest by my wife then the earning on it would go to my wifes income. Correct?
Yes you are right
Awesome article Amit. This is really helpful and clear.
Thank you :)
Please, send me the procedure of tax saving through my wife or other tax saving bonds for this financial year
The information provided is false. Even if your wife earns interest on gift amount, it will be treated as husbands income only.
Sorry but the above is true as per my knowledge but you are free to consult a tax expert and also let us know in case he does not agree with above post!
You are just talking about how to save tax on interest earned on investment. Where do you declare the invested amount in your tax calculations. ?
The Tax declaration never asks for How much you invested, it asks for how much you earned!