Often we come across questions where a person has invested in the name of his wife such as given below:
- I bought a House with name of my Wife who is house wife, but I am paying EMI of House Loan . Can I get Tax benefits/Exemption in House loan or not?
- Can I invest my money in a fixed deposit in my wife’s name with her pan card to save tax?
- My wife, who is a homemaker, opened a demat account in her name and She traded in stocks (on a small scale). How will the capital gains be calculated?
- I bought a piece of land with my income in the name of my wife, who is a homemaker. Now, I am constructing a house on the plot and the payment for the material and labour is being made by me. What is the procedure I need to follow in order to have a joint ownership of the property?
In this article we shall look into why a person would want to invest in his wife’s name, why is it not allowed, what are income tax rules that apply, how can one invest in wife’s name legally.
Table of Contents
Why would a person want to invest in name of his wife?
A person would want to invest in the name of wife mainly to save tax. Usually husband is in the high tax bracket than his wife so he would want to invest in name of his wife to save tax. When you transfer money to someone in the lower tax bracket, you are essentially trying to avoid tax which is considered unlawful. Please remember that now most of the investments require PAN number so tracking is very easy. And the big-ticket transactions are reported to the tax department by third parties (banks, brokerages, mutual funds , insurancee companies) . In other words it is easy for authorities to find out the transactions. Infact even if you give to your other relative say mother-in-law who then gives it to your wife can easily be traced.
If You Gift money
As per section 56 of the Income-tax Act, money received by an individual from any person during any financial year without consideration, the aggregate value of which exceeds Rs. 50,000, is taxable under the head Income from other sources. However, exemption is available if the money is received from a relative, which includes among others the spouse of an individual. So money given by husband to his wife is not be taxable in her hands.
Your money but investment is in name of Wife
While gifting money is not taxable in case of relatives but what if this money is invested and there is some income and tax liabilities? Then for investment in name of spouse, minor child and daughter in law the income made from investment is added to the income of the person who has given the money and that person only would have to pay tax. Technically Section 64 of the Income Tax Act contains clubbing provisions as per which any income from investment made or assets purchased in the name of close relatives (spouse, minor child or daughter-in-law) is clubbed with the income of the person making the investment and taxed accordingly .This applies to all types of investments such as shares, fixed deposits, land, building, post office savings and mutual funds and follows the rules of the specific investment. For example, if you give money to your wife as a gift and she puts it in a fixed deposit, the interest would be added to your income as Income from other sources and taxed . However, if the spouse/relative has a source of income and has bought the asset through his/her own funds, the income will be taxed in his/her hands. Our article Clubbing of Income discusses it in detail. Please note that clubbing provision comes into play only for spouse,minor child and daughter in-law, for parents, adult child the clubbing on income do not apply.
Investing in Fixed Deposit in name of Wife
As mentioned earlier if you give money to your wife as a gift and she puts it in a fixed deposit, the interest would be added to your income as Income from other sources and taxed . Our article Income From Other Sources :Saving Bank Account, Fixed Deposit,RD and ITR explains it in detail.
Investing in House in name of wife
- If you buy a house in your wife’s name but she has not monetarily contributed in the purchase and you have rented the house, then the rental income from that house would be treated as your income under Income from House Property and taxed accordingly.
- If a loan has been availed of to buy the property, you must know that the loan is always given to the owner of the house and, being a co applicant, does not entitle one to the tax concessions. (The wife may not be considered an eligible candidate for a loan by housing finance companies if she does not have an income of her own.) For claiming income tax deduction, the EMI amount is divided into the principal and interest components. The repayment of the principal amount of loan is claimed as a deduction under section 80C of the Income Tax Act up to a maximum amount of Rs 1 lakh individually by each co-owner. The repayment of the interest portion of the EMI is also allowed as a deduction under section 24 of the Act.
- If you have a home loan in which you are a co-applicant but, the total EMI amount is paid by you. Then you can claim income tax exemption if you are a co applicant in a housing loan as long as you are also the owner or co owner of the property in question.If you are only person repaying the loan, you can claim the entire tax benefit for yourself. You should enter into a simple agreement with the other borrowers stating that you will be repaying the entire loan.
- If you are paying part of the EMI, you will get tax benefits in the proportion to your share in the loan. For example you pay 75 percent of the EMI then In case you are living in the house for which home loan is taken, both of you shall be entitled to deduction in the ratio (3:1) on account of principal upto 1 lakh and interest on borrowed money up to a maximum of Rs. 1.5 lakh individually. If the house is given on rent, there is no restriction on this amount and both co-owners can claim deduction on interest in the ratio of ownership, 3:1 in your case.
Our article Income from House Property and Income Tax Return explains it in detail.
Investment in stocks or equity mutual funds in name of wife
If is she has traded in stocks or equity mutual funds the tax rules for stocks i.e capital gain tax apply. For capital gains tax, it has to be seen whether the shares qualify as long- or short-term capital asset, which depends on the period of holding.
- If the shares or equity mutual funds are held for at least 12 months from the sale date, they shall be classified as long-term capital assets. Long-term capital gains (LTCG) shall be computed as the difference between the net sales proceeds (after deducting incidental transfer charges) less the indexed cost of acquisition. In case of LTCG, while calculating the cost of acquisition, the cost inflation index has to be considered. The net taxable LTCG shall be clubbed with your income and shall be taxable in your hands at 20.6% (including education cess). Further, in case the shares (other than equity on which securities transaction tax, or STT, is applicable) are listed, you have an option to offer LTCG either at 20.6% (including cess) with indexation or 10.3% (including cess) without indexation. The LTCG resulting from sale of shares, on which STT has been paid, could be claimed as tax-exempt under section 10(38) of the Act. However, the said LTCG should be disclosed in your tax returns to be compliant from disclosure perspective. The charges for the demat account to the extent to which they can be related to purchase and sale transactions, and brokerage on the sale and purchase transactions, can be reduced from the gross gains to arrive at the tax.
- If the shares or equity mutual funds are held for less than 12 months from the sale date, it shall be classified as short-term capital asset. Short-term capital gains (STCG) shall be computed as the difference between net sale proceeds (after deducting incidental transfer charges) and cost of acquisition, but the benefit of indexation shall not be available. The net taxable STCG should be clubbed with your income and shall be taxable as per the applicable income-tax slab rate. Further, STCG arising from sale of equity shares on which STT has been paid shall be taxable at 15.45% (including cess).
Can Clubbing provisions be avoided without tax avoidance?
Are there ways to avoid the clubbing provisions without crossing the line between tax avoidance and tax evasion? Yes.
Loan money : If you want to buy a house in your wife’s name but don’t want the rent to be taxed as your income, you can loan her the money. In exchange, she can give you her jewellery. For example, if you transfer a house worth Rs 10 lakh to your wife and she transfers her jewellery for the same amount in your favour, then the rental income from that house would not be taxable to you.
Invest in Tax Exempt Income : One can also avoid clubbing of income by opting for tax exempt investments. There is no tax on income from the Public Provident Fund . There is also no tax on gains from shares and equity mutual funds if held for more than a year. So, if one invests in these options in the name of the spouse, there is no additional tax liability.
Related articles :
- Clubbing of Income
- Income From Other Sources :Saving Bank Account, Fixed Deposit,RD and ITR
- Joint Home Loan and Tax
- Income from House Property and Income Tax Return
This article makes you aware of what happens when one invests in the name of wife, why is it tax avoidance, can one invest in name of wife legally. Have you invested in name of wife? What has been your experience?
I am an NRI and would like to know what is the tax applicable INR15,600 per month rentals received in India, and expect increase to INR 23,400 in the next few months? and benefit if the same amount is utilized for my children schooling and family expenses
I m salaried employee. applied for home loan, me as applicant and my wife is co applicant.however registering the property only in my wife name, she is house wife(Not earning anything). whether will i avail tax benefit? Pl. advice!
Can experts guide me with regards to taxation :
1) I am an NRE and I send money every month to my wife and child.
I send wife 8000/- and she invests this in equity mutual funds
I send child 12500/- and the same is invested in equity mutual fund in name of child.
Child is minor and my wife PAN card is quoted on transactions.
2) I also put 1.5 lacs per year in minor childs ppf account, which again has my wife as guardian and her PAN card is used for the same.
My wife has rental income of 168000/- per year.
Please advice me what is my wife tax liabilty.
My thinking is that since gifted money is invested in equity MF over 1 year, and PPF which are tax free instruments, my wife falls below the min exemption limit of 2.5 lacs and is not in the tax bracket.
Experts please guide.
Very Nice Article. I have one query. I purchased flat with my wife as co-applicant. She is housewife. All transactions did from my account only while buying flat. My wife received Income tax notice as purchase of property above 30 lakh . While responding to Income Tax compliance, just want to confirm that I should select “Other PAN” option in related information summary TAB. I should mention my PAN number. Thanks in adavance.
hiii there,
i have invested 90,000 in the name of my wife under Bajaj Insurance and SIP can i claim it under my tax savings..if yes then under which section plz reply.. thank you
Thanks a lot, this really is a truly awsome article! Has anyone ever wondered how to fill out forms online? I have, and found a simple service. You’ll forget about paperwork when you try PDFfiller. NY DTF ST-120 can be filled out in 5-10 mins here
https://goo.gl/gJWBUw.I have bought a flat in 2010 and now I want to sell it and buy new flat in my spouse name(she is also working) from sale proceeds of my old flat. Will there be any property tax on me?
I want to give money to my sister on no return basis. how I do proceed so that she will not face any tax related problem.
Hi bemoneyaware!
I have taken some money from my brother as a loan which I will be paying back in 2-3 years as and when possible.
I have invested THAT MONEY on my wife’s name by purchasing shares of an UN-LISTED company X. Company X pays decent to good amount of dividends, which is deposited in her account which is jointly held my me, every Qtr and Annually. I am not aware if the Company X pays DDT on the amount shared as profit.
Now the question is, The money is not from my source of income which was invested. It was from my brother!
—————————————————————————–
Does Investing this money on name of wife and the earning received from the X in the form of dividends or profit sharing will be income of my wife or me?
—————————————————————————–
WIll this be considered as my wife’s income and Tax needs to be paid on her behalf? Or will clubbing of income will come in as the rule?
Regards,
Chintu
hi sir,
i have taken SIP under 80C. and it invested as name of my Wife. so it can be apply on TDS.
SIP in ELSS funds for saving tax? How does TDS come in?
Dear Team
Excellent post! Quick question-My Dad has agricultural income and I work at an MNC. I plan to send money to my dad’s account and use it to invest in Debt funds. This is to avoid clubbing of gains to my income tax slab. If the same gets added to my Dad’s account the gains will still be less than 2.5lakhs. Is it a good idea? Reading your post, I get the feeling that it is unviable. Alternatively, is there any way i can prevent the taxation?
Thanks in advance!
Thanks.
Investing in name of wife is unviable but no in name of parents and adult children.
But please be careful of expectations from your wife/siblings.
Once you gift the money to your parents are you expecting it back?
One way of saving on taxes is to gift your children and parents assets and cash for investments.
As per the current laws, any gift received in cash or kind exceeding Rs 50,000 is taxed in the hands of the recipient as “income from other sources”. However, this rule does not apply to gifts received from relatives. Additionally, any gift received on the occasion of your marriage, under a will or inheritance is not taxed in your hands.
So who is a relative and what is a gift for the purpose of claiming tax benefits?
Relatives, for the purpose of taxation, include spouse of the individual, siblings, brothers and sisters of the spouse, brothers and sisters of the parents, and any lineal ascendant or descendant of the individual or the spouse.
So the easiest way of saving tax is by gifting money or assets to your major children and parents who don’t have any income of their own.
Let’s assume that your parents are senior citizens (above 60) and have no income. You can gift them any amount of cash for investing in high-return instruments such as senior citizen’s savings scheme.
As senior citizens do not have to pay any tax for annual income up to Rs 2.5 lakh, the interest income does not become taxable unless it exceeds this exemption limit. This means you can invest up to Rs 25 lakh through each of your senior parents without any source of income if the annual interest or return is 10%. You can invest up to Rs 50 lakh through your senior parents and have a tax-free annual income of Rs 5 lakh.
Sir, I & my brother is selling my ancestral property. I want to invest my share to buy a house for my family in my wife’s name. Please suggest what will be the tax implication for both of us. This is only one house we will have in our possession.
If my company pays all salary as basic salary. what all rebates am I eligible for except 1.5 lakhs of 80C and 24000 HRA. What else can i claim?
my wife give me 2 lake form his account than i purchase a land in 6 lake with her name she also file itr and i also file itr.than how to show these things in both itr
I invest in mutual fund..in my wife name.who is a home maker
for..amount of 25000 per month….
Do she need to file IT returns…pls advice me…
She doest have any income.
Income Tax return is filed if taxable income is above 2.5 lakh.
You don’t earn anything when you buy Mutual Funds but when you sell or redeem.
In case of Equity Mutual Funds if you hold your investent for 1 year then it comes as Long Term Capital Gain and is tax free.
If case of Deby mutual fund, your wife have to hold for more than 3 years for profit/loss is Long term capital gain.
What kind of funds are you investing in?
I am transferring Rs 20000 every month to my wife for living as wife has no income. Now my wife has saved some money and wants to open demat account to trade in futures, short term. Now how she has to pay tax if she earns profit from market
i am getting govt pension.
my gross salary around Rs 10 L.
presently not invested in any savings scheme.
how to manage to pay least tax ?
what is best scheme under 80c for deduction and max deduction possible ?
till when can i deposit advance tax at treasury ?
thanks
Dear Sir/mam ,my daughter has a sukanya policy which has 12000/ saved per year.This is a tax rebate policy.This policy owner by my spouse.Ans my wife has not getting any income yet.Can i take rebate of this policy.And What is the procedure.Please tell me.
I have a jewellery bill for 25,0000 and my wife has a jewellery bill for 50,00 , now she wants a bigger jewellery of one piece, can I combine the two bills and get a single bill for the bigger jewellery in my wife name
It is possible as you can gift to your wife.
But why the doubt ?
Will Transfer of jewellery not attract capital gain tax in the hands of wife..
In what way are you planning to transfer the jewellery to your wife.
There are two ways in which you can transfer jewellery to your wife’s account:
I. You could gift the jewellery to your wife In this situation you do not have to pay any capital gains tax. This is because a gift to your spouse does not constitute a transfer as defined in the Income Tax Act and hence no capital gains tax is chargeable to the transaction.
Your wife, who receives the gift, also does not have to pay any tax since a gift received from a spouse does not attract any income tax. However, any profit generated from the jewellry in future will be clubbed with your income for the year and will be taxed at your marginal rate of tax.
II. You could transfer the jewellery against payment Since the transfer will be offmarket and securities transaction tax will not be paid, the payment received by you will be subject to capital gains tax.
You can’t escape this by stating that the transfer was on a no-profit-no-loss basis.
Sir, My query actually is- We want to transfer FDRs in the name of wife with consideration to avoid clubbing provision of income over FDR Interest in the hands of Husband. One way is , we can show the wife is having jewellery and husband has purchased that jewellery in consideration of FDRs. Now would transfer of jewellery by wife to husband would not attract capital gain tax in the hand of wife since it is not the gift but purchase consideration for FDR transfer.
Sir,
My wife does not have a demat account but wants to buy CPSE ETFs woth 25000. Can she invest it using my demat account? How should this transaction be done so as to not pay any tax? My wife is a home maker and the money (25000) has been inherited by her from her recently deceased grandfather.
Central Public Sector Enterprises (CPSE) exchange traded fund (ETF), is an open-ended ETF comprising 10 public sector undertaking (PSU) stocks. It’s a cyclical and not a secular growth business. Unless you have a clear view on where the oil, gas or coal prices are headed and how the subsidies will pan out, it is difficult to take a call on the sector on a long-term basis. So hope she knows what she is doing.
If she invests using your demat, as you are primary holder of the account, investment would come to be in your name.
Before investing she should decide what is she looking for from investment, how long does she want it invested. There are many avenues to earn tax free interest.
As she is homemaker she would not be having any income so even if she invests in FD interest would be tax free.
Resp. sir: I am helping my wife buying land worth 15 lack. Is it possible that, i pay full amount directly to land owner and my wife will absolve from tax liability as far as this land is concerned. .. …
Other option is that i give him money and she pays to land owner, will my paying money will be considered as income to her.
How to plan the transaction if my wife do not want any tax liability. .. …
Tax liability in case of property or land comes when one sells it and that too in terms of capital gain/loss.
Also stamp duty is lower for women in many states and that you can save 1-2 per cent of stamp duty by registering the property in your wife’s name.
Moreover, purchasing a house in the name of the wife by applying your own funds means that you are using her as a name-lender and this is a ‘benami transaction’ and hence illegal.
One way of circumventing this is to give a ‘loan’ to your wife. So, if you lend her Rs 15 lakh, she can later transfer jewellery worth this amount in your name.
In any case If any income is earned from land then though it would be in your wife name , it would be clubbed with yours.
Capital gain of what kind – from stocks, mutual funds,property.
You have to choose the appropriate ITR and fill it for ex ITR2
Dear Sir/madam, my spouse is a housewife and i have done some trading activity in futures and options segment in her account. Can the profits out of this trading activity be clubbed in my income or she can file a separate returns. The gains are less than Rs.50,000. Pls clarify.
Dear Kirti,
Very informative article. Please explain my query. My wife is in service and files IT return too. Although she is in lesser(10%) tax bracket than me (30%). We regularly invest in FD. Generally. its in the ratio of 60(wife)/40(me). How should I club or not club the income. Till now, I have not shown the interest earned through FD in my income. Although, she has paid the tax on it. Is it wrong??
Regards
There are hell lot of income tax rules , should be abolished right away. Like gifting your wife in exchange of gold. You can gift your adult child any amount of money to save tax but not your spouse. there is provision of clubbing of income with your wife’s income but tax deducted in her account can never be claimed.
who is to simplify these rules is a very taxing issue.
My 80c I.e 1.5 Lakh exhausted so if give 20k to my housewife, if she deposit in Recurring deposit and final amount of RD deposits in Sukanya Samriddhi yojna scheme annually, does it comes under clubbing? pls do reply
Thanks for the article.
There is one query FD is made on wife name, we will clubbed the interest in husband income, but , if the bank has deducted the tds on interest in the name of wife, can the husband claim the tds in his return??
No Sir TDS is tied to PAN number so TDS deducted in name of wife cannot be claimed by Husband.
If your wife income is less than 2.5 lakh then she can file the ITR and claim the refund. From next year she can submit Form 15G so that TDS is not deducted. This would still appear against her PAN.
You can show that you have given loan to your wife in exchange for jewellery, have a simple letter drawn. Then money becomes hers and she can submit Form 15G for non deduction of TDS.
Hello thanks for the reply. It is very helpful.
Dear Kriti,
I have a peculiar query if you could help me with it.
1. Firstly is it true that a man in India can posses 200 gms of gold (jewellery) unaccounted and similarly a woman can possess 500 to 600 gms of gold.
2. In either of the case mentioned above (the jewellery is with or without bill), how can a son and son’s wife transfer their jewellery to his father’s (a jeweller proprietor)firm. I mean what would be a legal procedure a gift, a written affidavit or what?
Not clear 100%.if i am paying house loan and gifted the property to my wife.than i should get the benefits in tax .though i am applicant of loan not owner.
Sir, this is what Income tax department does not want
You can claim income tax exemption if you are a co applicant in a housing loan as long as you are also the owner or co owner of the property in question. A co-owner, who is not a co-borrower, is not entitled to tax benefits. Similarly, a co-borrower, who is not a co-owner, cannot claim benefits. Before you sign as a co-applicant in a home loan, make sure that you get a right to the property as well. Registering the house in joint names will get you additional tax benefits as mentioned earlier and your share in the property also becomes indisputable.
Our article Joint Home Loan and Tax discusses it in detail.
Thanks a lot for the valuable article. One query, I gave 5 lakhs to my wife and she gave gold to me for the equal amount. She is investing that 5 lakhs in share market and earning. She is getting 50k-1 lakh profit per year. Does she need to file IT return and form-16 in her name. Also whether I need to extra income in my form-16 since I got gold from her.
Sir
Generally If you give money to your wife and she earns income from it then become of clubbing provision income is added to husband’s income only.
But this can be avoided if you loan money to her and she transfers gold to you.
Do you have some proof that she has transferred gold to you? If not a simple letter on plain paper stating money was loaned in exchange of gold should be suffice for Income tax authorities if need be.
Form 16 one gets if one is working as employee. So I am wondering how will your wife get Form 16
Income would be taxed depending on whether she is investor or trader?
To understand the applicability of capital gains tax on your transactions, the first step is to classify yourself as either a trader or an investor.
classification depends on how often you buy and sell and is also based on your income
Any gain or loss made after holding the stock for more than 12 months is considered a long-term capital gain or loss. For an investor, long-term capital gains are completely exempt from tax.
But for a trader, the gains will be considered as business income and taxed at the normal slab rates of 10, 20 or 30 per cent. However, since this is business income, the expenses incurred on trading, such as internet connection charges and so on, can be excluded from the gains.
Gains made within 12 months of the sale of a stock are short-term capital gains, which are taxed at 15 per cent for investors. For traders, short-term gains are taxed the same way as long-term gains. In case of a loss, traders can set off/carry forward both short-term and long-term capital losses. In the case of investors, only the short-term capital loss can be carried forward and set off, with no provision for setting off or carrying forward a long-term capital loss. There is an eight year time limit for setting off a capital loss.
If you make a quick buck through day trading, the profit or loss from such intraday trades is treated as speculative activity. So if you make a profit, it will be added to your income and taxed as per your tax slab. A speculative loss can be taken forward for setting off, but only within the next four years and against speculative income.
Hi,
Say if I loan Rs50,000 to my wife for gold and have a written paper stating the agreement. Now she invests in stock market and makes 1 lakh in a year.(she is a house wife with no income). She will not fall in any tax slab and in effect she does not have to pay any tax, am I right?
My wife is hearing handicapped person, I invest some money in the name of my wife’s share, Will it be not taxable for my wife below income tax exemption?
I don’t think so. Where are you investing – Fixed Deposits or share.
If the money you invest in name of wife earns interest then it would be clubbed with your income.
Very detailed and well written article.
Is there any limit on the PPF amount that one can contribute? Say, the husband is already putting 1lac into his PPF. Can he contribute another lac to his wife’s PPF? And later his kids?
Thanks. One can invest upto 1 lakh in your PPF account and in your wife PPF account but can claim exemption for 80C only for 1 lakh.
If you have invested in name of your wife, due to clubbing of income your need to show the interest earned on her PPF account.
For investing in name of minor child there are two opinions
1) You can invest 1 lakh each in your account and your kids account
2) You can invest in both your account and your child account but limit is 1 lakh in total of the both the accounts.
However, if the child is over 18 years, up to Rs 1,00,000 a year can be invested in his name separately. The taxman insists on clubbing the income of minor children with that of the parent. But once they turn 18, they can have a separate income.
Have discussed it in detail in our article PPF Account for Minor and Self
Hope it clarifies your doubt
Dear Kirti, shall we put it this way regarding PPF contribution?
1) You in your own account: 1 lac max.
2) You in your account plus minor child’s account: 1 lac max.
3) You in your account plus spouse’s account: 2 lac max.
4) You in your account plus major child’s account: 2 lac max.
5) You in your account plus 2 major children’s account: 3 lac max.
However, maximum 80C deduction available is 1 lac and that too if invested in your account/spouse’s account/minor child’s account.
For the amount invested in major child’s account, interest is tax-free but you cannot avail 80C benefit. But can the major child avail 80C benefit if the cheque is deposited from your bank account (your money)? What happens if you deposit cheque in your father’s/mother’s/brother’s/sister’s PPF account? Whether 80C deduction is available and to whom? Of course, interest will be tax-free in any case.
Also, Kirti, in all these possibilities, we are not required to “gift” the amount…just directly deposit in their PPF account. Your views? Thanks.
Dear Kapil
You are bang on understanding investing in PPF. To repeat your words
1) You in your own account: 1 lac max.
2) You in your account plus minor child’s account: 1 lac max.
3) You in your account plus spouse’s account: 2 lac max.
4) You in your account plus major child’s account: 2 lac max.
5) You in your account plus 2 major children’s account: 3 lac max.
Now let’s come to 80C deduction.
The upper limit under Section 80C of the Indian Tax Laws is 1 lakh and it includes contributions made towards all saving instruments that fall under this category against both your as well as your dependents names. Say you are putting 1 lakh each in your wife name or child then, even though you are investing 2 lakhs, you will get tax benefits only for 1 lakh under Section 80C.
For details Hindu’s Q&A
Now let’s try to tackle investing in name of family and taking income tax deduction.
Quoting from Business Today Within the Family
While not all instruments allow tax deduction on investment in other’s name, your contributions towards PPF, life insurance in your spouse/child’s name and health insurance in your parents’ name are eligible for income tax deduction.
“Investments made by an individual for his/her spouse or children are eligible for deduction if they are into life insurance and PPF,” says Sreenivasulu Reddy, senior tax professional, Ernst & Young.
One can put money in PPF or Senior Citizens Savings Scheme (SCSS) in the name of spouse/parents and earn tax-free returns. If you have exhausted the Rs 1 lakh limit under PPF, you can gift money to spouse, parents, adult children or siblings, who can invest it in PPF. Though you won’t be eligible for deduction in such cases, your money will earn a tax-free return of over 8% a year.
You can transfer surplus to your parents (above 60 years), who can in turn invest the same in SCSS, which is at present giving 9.3% annual return. Again, you cannot claim income tax deduction as this investment it is not in your name. But you can earn over 9% tax-free interest.
There is also an interesting link at CAClub
So you cannot claim the deduction for your father’s/mother’s/brother’s/sister’s PPF account/major child PPF account. Now whether they can claim 80C deduction is debatable. As earlier there was a condition about payment should be paid out of the income of the assessee which was there When section 88 was introduced , the said condition was there and subsequently taken away. In the reintroduced 80C, the condition of payment out of one’s own income is missing, meaning there by, the loan affair as said by the above learned members can be worked out.
So for them to claim deduction they need to show as a loan from you!
Thanks, Kirti! It’s clearer now 🙂
Thanks Kapil.
Thanks for the reply Kirti!
Per your statement:
“If you have invested in name of your wife, due to clubbing of income your need to show the interest earned on her PPF account.”
One just needs to report this while filing taxes as tax exempted income, right? There won’t be any tax liability since PPF is an EEE instrument. What do you say?
Yes Elbis you are right! Infact you gave me an idea for article – how to show clubbed income in your ITR. Shall plan for writing it sometime soon!
Very detailed and well written article.
Is there any limit on the PPF amount that one can contribute? Say, the husband is already putting 1lac into his PPF. Can he contribute another lac to his wife’s PPF? And later his kids?
Thanks. One can invest upto 1 lakh in your PPF account and in your wife PPF account but can claim exemption for 80C only for 1 lakh.
If you have invested in name of your wife, due to clubbing of income your need to show the interest earned on her PPF account.
For investing in name of minor child there are two opinions
1) You can invest 1 lakh each in your account and your kids account
2) You can invest in both your account and your child account but limit is 1 lakh in total of the both the accounts.
However, if the child is over 18 years, up to Rs 1,00,000 a year can be invested in his name separately. The taxman insists on clubbing the income of minor children with that of the parent. But once they turn 18, they can have a separate income.
Have discussed it in detail in our article PPF Account for Minor and Self
Hope it clarifies your doubt
Dear Kirti, shall we put it this way regarding PPF contribution?
1) You in your own account: 1 lac max.
2) You in your account plus minor child’s account: 1 lac max.
3) You in your account plus spouse’s account: 2 lac max.
4) You in your account plus major child’s account: 2 lac max.
5) You in your account plus 2 major children’s account: 3 lac max.
However, maximum 80C deduction available is 1 lac and that too if invested in your account/spouse’s account/minor child’s account.
For the amount invested in major child’s account, interest is tax-free but you cannot avail 80C benefit. But can the major child avail 80C benefit if the cheque is deposited from your bank account (your money)? What happens if you deposit cheque in your father’s/mother’s/brother’s/sister’s PPF account? Whether 80C deduction is available and to whom? Of course, interest will be tax-free in any case.
Also, Kirti, in all these possibilities, we are not required to “gift” the amount…just directly deposit in their PPF account. Your views? Thanks.
Dear Kapil
You are bang on understanding investing in PPF. To repeat your words
1) You in your own account: 1 lac max.
2) You in your account plus minor child’s account: 1 lac max.
3) You in your account plus spouse’s account: 2 lac max.
4) You in your account plus major child’s account: 2 lac max.
5) You in your account plus 2 major children’s account: 3 lac max.
Now let’s come to 80C deduction.
The upper limit under Section 80C of the Indian Tax Laws is 1 lakh and it includes contributions made towards all saving instruments that fall under this category against both your as well as your dependents names. Say you are putting 1 lakh each in your wife name or child then, even though you are investing 2 lakhs, you will get tax benefits only for 1 lakh under Section 80C.
For details Hindu’s Q&A
Now let’s try to tackle investing in name of family and taking income tax deduction.
Quoting from Business Today Within the Family
While not all instruments allow tax deduction on investment in other’s name, your contributions towards PPF, life insurance in your spouse/child’s name and health insurance in your parents’ name are eligible for income tax deduction.
“Investments made by an individual for his/her spouse or children are eligible for deduction if they are into life insurance and PPF,” says Sreenivasulu Reddy, senior tax professional, Ernst & Young.
One can put money in PPF or Senior Citizens Savings Scheme (SCSS) in the name of spouse/parents and earn tax-free returns. If you have exhausted the Rs 1 lakh limit under PPF, you can gift money to spouse, parents, adult children or siblings, who can invest it in PPF. Though you won’t be eligible for deduction in such cases, your money will earn a tax-free return of over 8% a year.
You can transfer surplus to your parents (above 60 years), who can in turn invest the same in SCSS, which is at present giving 9.3% annual return. Again, you cannot claim income tax deduction as this investment it is not in your name. But you can earn over 9% tax-free interest.
There is also an interesting link at CAClub
So you cannot claim the deduction for your father’s/mother’s/brother’s/sister’s PPF account/major child PPF account. Now whether they can claim 80C deduction is debatable. As earlier there was a condition about payment should be paid out of the income of the assessee which was there When section 88 was introduced , the said condition was there and subsequently taken away. In the reintroduced 80C, the condition of payment out of one’s own income is missing, meaning there by, the loan affair as said by the above learned members can be worked out.
So for them to claim deduction they need to show as a loan from you!
Thanks, Kirti! It’s clearer now 🙂
Thanks Kapil.
Thanks for the reply Kirti!
Per your statement:
“If you have invested in name of your wife, due to clubbing of income your need to show the interest earned on her PPF account.”
One just needs to report this while filing taxes as tax exempted income, right? There won’t be any tax liability since PPF is an EEE instrument. What do you say?
Yes Elbis you are right! Infact you gave me an idea for article – how to show clubbed income in your ITR. Shall plan for writing it sometime soon!
There are far too many people making fixed deposits in the names of their spouses and NOT reporting the interest income in their own IT return. Add to this, the spouse, who is generally a housewife, does not file returns. So the income becomes fully tax-free!! These clubbing provisions have been in place for years now but this practice of investing in the spouse’s name and not reporting it is rampant.
Want to know of more such unreported income streams? Rental income in wife’s name, postal scheme investments in wife’s name, shares/mutual funds in wife’s name…
You are doing a great service to your readers by disseminating knowledge through your blogs, but isn’t it irksome that even if people understand what you’re trying to explain, many of them will still shrug it off either with a “Kaun poochta hai?” or “Jab aasmaan girega, tab dekhenge”.
Sad state of affairs, isn’t it?
Rightly said Kapil. Earlier there were many such cases which went undetected but with most of things requiring PAN and easy to track money trail it would be become increasingly difficult to avoid it.
Our job is to make one aware of such information for in many cases ignorance is not bliss. To each his own and soote ko jagaya ja sakta hai..jagte waale ko nahin ?
Very true 🙂
Thanks Kapil for your very useful comments. Looking forward to more interaction!
There are far too many people making fixed deposits in the names of their spouses and NOT reporting the interest income in their own IT return. Add to this, the spouse, who is generally a housewife, does not file returns. So the income becomes fully tax-free!! These clubbing provisions have been in place for years now but this practice of investing in the spouse’s name and not reporting it is rampant.
Want to know of more such unreported income streams? Rental income in wife’s name, postal scheme investments in wife’s name, shares/mutual funds in wife’s name…
You are doing a great service to your readers by disseminating knowledge through your blogs, but isn’t it irksome that even if people understand what you’re trying to explain, many of them will still shrug it off either with a “Kaun poochta hai?” or “Jab aasmaan girega, tab dekhenge”.
Sad state of affairs, isn’t it?
Rightly said Kapil. Earlier there were many such cases which went undetected but with most of things requiring PAN and easy to track money trail it would be become increasingly difficult to avoid it.
Our job is to make one aware of such information for in many cases ignorance is not bliss. To each his own and soote ko jagaya ja sakta hai..jagte waale ko nahin ?
Very true 🙂
Thanks Kapil for your very useful comments. Looking forward to more interaction!
sir if any individula income from only capital gains then how indivdula can file tax