How your wife can help you save taxes?

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How your wife can help you save taxes?

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 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.

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

  1. Sir I and my wife both are in government service. Please you suggest me that when both are tax payer then wife can give premium of life insurance which is my name

  2. Amit JI.. is there any limit on gifting money to your spouse or investing on her name. Pls suggest

    • No there is no limit for gifting money to your spouse but remember any income on such gift would be added to your income for tax purpose.

    • If I give my husband gift of Rs 50000 in form of FD in any bank will I get tax benefit in this case then how much.Please suggest.

      • There would be NO tax benefit. The money is yours and the interest earned would be clubbed with your income. However if the interest invested further the income generated will be your husband’s and taxed to him.

  3. Dr Santosh

    Amitji,
    Thanks for sharing such an wonderful information 👍
    I wish to share some of my queries over mail. Pl do reply.

  4. 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.

  5. 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?

  6. Awesome article Amit. This is really helpful and clear.

  7. Please, send me the procedure of tax saving through my wife or other tax saving bonds for this financial year

  8. 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!

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