Income Tax

Can You Save Tax by Transferring Money to Wife’s Account?

Can You Save Tax by Transferring Money to Wife’s Account

Do you want to transfer money to your spouse’s account so she can meet personal expenses? Will that money be counted as income? Or is it considered as borrowed? Would you save tax by transferring money to your wife’s account? As the frequency of online transactions has increased, many people have raised their concerns that the money deposited in their wife’s account every month will be taxable or not. In this blog, we will understand how income from such a transfer will be treated from an income tax standpoint.

As per the tax experts, money deposited in the wife’s account for household expenses will be considered as the husband’s income, and the wife will not pay any tax on this. However, in some unusual circumstances, it becomes the wife’s income, and the amount becomes taxable in such a scenario. This can be in cases where the money is used for investment purposes repeatedly, and she makes an income out of it, then tax will be levied on the income generated. If the wife is investing the amount deposited in her account every month through SIP (Systematic Investment Plan), then she does not have to file an Income Tax Return or pay any tax on it; however, if income earned by investing this money is invested again, then the wife will have to pay income tax on it. Further, the Income Tax Act says that if you give some money, which is not a part of your income, as a gift to your wife, then you will not get any tax rebate. As per the law, it will be considered your income, and so the tax liability will be yours, too.

When money is invested in Shares, or Fixed Deposits, or other Assets

Shares may be purchased in your wife’s name, or fixed deposits may be placed in your wife’s name, but the gains from the wife’s share or income from fixed deposits shall be clubbed with your income. The provisions of the Income Tax Act provide that your own income and tax at slab rates applicable to you. Any capital losses from sales get added, too.

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When Money is considered as Loaned

A situation could arise where the money is transferred to genuinely meet her financial needs, such as to help start a business. Such an amount is considered as a loan if it is to be returned with interest. Where a reasonable interest is charged and it is shown as a source of income, the income earned by your wife may not be combined with yours. However, the same amount can be used to invest in shares to earn an income, and that’s how you can end up saving tax by preventing clubbing of income (gains) on shares. It then becomes hard to convince the tax authorities about the lender-borrower arrangement, as there is a close relationship between the parties and the tax savings involved. Usually, the provision is misused as a tax-saving avenue, and that is what the tax authorities1 want to be careful of.

To meet Personal Expenses

If you are married and one of you is a homemaker without any income, it is common for such a person to get some money for personal expenses. As it has no income tax implications, it is not considered as an income in the receiver’s hands. But any interest arising from a bank account will still be clubbed.

Conclusion

In simple words, money deposited in the wife’s account for household expenses will be treated as the husband’s income, and the wife will not pay any tax on this. However, in some unusual circumstances, it becomes the wife’s income, and the amount becomes taxable in such a scenario.

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FAQs

  1. How much money can be transferred to the wife tax-free?

    As per section 56 (2) (x) of the Income Tax Act, cash gifts of up to INR 50,000 are not subject to tax in the hands of the recipient, which includes the spouse.  

  2. Is the transfer of money to the wife's account taxable?

    No, it is not taxable as it has no income tax implication and is not considered as an income in the receiver’s hands.

  3. How much money is tax-free for a housewife?

    Housewives in India have an income exemption limit of INR 3 lakhs for the FY 2022-23 under the new tax regime and INR 2.5 lakhs for FY 2022-23 under the old tax regime.

  4. Can I send my wife money?

    Yes, you can send your wife money.  

  5. Is transferring money to family members taxable?

    Transferring money of up to INR 50,000 per annum to family members is not taxable.   

  6. Is money received from relatives taxable?

    No, money received from relatives is not charged to tax.

  7. Is money transfer from son to father taxable?

    Any money transfer from son to father will not be treated as income in India, so it is not subject to tax in India.

References

  1. https://incometaxindia.gov.in/acts/indian%20income-tax%20act,%201922/102120000002045766.htm

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