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How Much Money Can a Husband Give to His Wife Tax-Free?

  • Writer: Bhavika Rajput
    Bhavika Rajput
  • 9 hours ago
  • 5 min read

A spouse can be involved in a number of tax preparation strategies. On the other hand, some actions will not result in lower taxes. Money or other assets given to a spouse are taxed in the giver's hands even when they are exempt in the recipient's hands. Additionally, the transferor is liable for taxes on the income received from the transferred gift. A couple can save money on taxes in several ways, including capital gains and home loan deductions.

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How a Husband Can Save Tax by Transferring Money to His Wife?

Giving Money to Wife as a Loan

If the money must be paid back along with interest, it is seen as a loan. Your wife's salary might not be combined with yours if you are charging a fair interest rate and displaying this as a source of income. However, you can use the money you loaned your wife to invest in shares and generate income. By doing so, you can avoid clubbing your income (gains) on shares, which would save you a lot of money on taxes. Then, considering the tight relationship between the parties and the tax savings involved, it can be challenging to persuade the tax authorities of the lender-borrower arrangement. The tax authorities are cautious since the provision is typically abused as a way to avoid paying taxes.


Spouse loans are not restricted by taxes. However, make sure to repay with fair interest. This proves the loan's legitimacy and prevents problems if your spouse is unable to repay. Keep in mind that granting an interest-free loan or waiving interest could be interpreted as an unconsidered transfer of assets, subject to clubbing requirements and income tax on any profits from such investments.


Money Given to Wife for Personal Expenses

A wife usually gets some money to cover personal expenses if she is a homemaker without a job. This is not regarded as income in the receiver's possession and has no bearing on income taxes. Nonetheless, clubbing laws may still apply to any interest received from a bank account.


Property Invested in Wife’s Name

Transferring property between spouses does not immediately result in taxation, much like gifts do. However, the clubbing provisions kick in if there is either no consideration or insufficient consideration (money paid for the asset). The spouse who originally possessed the transferred assets is still responsible for paying taxes on the income from those assets.


Example- Take the case of a husband giving his wife his house as a gift. The clubbing provisions keep the rent taxable in the husband's hands even after she becomes the legal owner. The same holds if he uses his funds to purchase a new home and registers it under your name.


Fixed Deposits or Shares in Wife’s Name

The profits from your wife's shares or income from fixed deposits will be combined with your income. It is regardless of whether shares were bought in her name or fixed deposits were made in her name. This income is subject to the applicable slab rates of taxation. Any capital losses from sales are also included.


How Can Your Wife Help You Save Taxes?

The spouse might take advantage of a number of tax incentives to improve income tax savings. Some strategies to optimise tax savings with your spouse or family members' assistance include the following:


  • Investments in Equity- According to Section 112A, if the Security Transaction Tax (STT) has been paid, long-term capital gains from equity shares or equity-specific units of schemes are eligible for an annual tax exemption of up to Rs. 1.25 lakhs. Both couples may claim this exemption by investing in the shares or schemes together.

  • Health Insurance Policy- An individual/HUF may deduct up to Rs. 25,000 for health insurance premiums as per Section 80D. Both of you can buy health insurance policies that will allow you to use up all of your deductions and save the most money on taxes if the cost exceeds this cap.

  • Children's Educational Costs- Section 80C permits for a deduction of up to Rs. 1.5 lakh for costs related to the two children's education. The other spouse may claim a discount for additional fees or other children if there are more than two children or if the cost of schooling exceeds Rs. 1.5 lakh.

  • Home Loan Deductions- As co-borrowers and joint owners of the property, both spouses are eligible to claim the deduction for interest and home loan repayments. The pair will save more money on taxes as a result of being able to claim individual deductions.

  • Leave Travel Allowance (LTA)- Both spouses may claim deductions under the LTA for a total of four journeys over four years, rather than two, if both are employed.


The spouses can maximise their income tax savings and reduce the family's overall tax obligation by taking advantage of these tax incentives.


How Much Money Can a Husband Give His Wife Tax Free?

Transferring funds to your wife's account can help you save money on taxes. However, you should do so lawfully and not in an attempt to avoid paying taxes. Certain restrictions in the Income Tax Act are designed to stop tax evasion through these kinds of transfers. Your wife may also invest the funds you provide her under her own name, but keep in mind that any profits from these ventures are taxable. You and your spouse can maximise your income tax savings and reduce the family's tax obligation by taking advantage of these tax advantages.


Conclusion

Tax benefits may not always come from money transfers between spouses, but clubbing measures will be drawn in to prevent tax avoidance. In the event of such a transfer, the spouse with the greater income will receive the income from using the transferred amount. However, with careful planning and investment, taxes can still be reduced.


Frequently Asked Questions

Can I provide money to my spouse as a loan?


Yes, you can lend your spouse money as long as a fair interest rate is applied and reported as income. Then it may not be included in your earnings. Maintaining accurate documentation will help you evade tax authorities' scrutiny.


Do I need to pay tax on the money received from my spouse for personal expenses?


No, there are no tax ramifications when you accept money from your spouse for personal purposes. As far as the recipient is concerned, it is not revenue.


Can I transfer money to my wife's account for saving tax?


You can deposit funds into your wife's account, yes. To stop tax avoidance through these transfers, the Income Tax Act contains particular measures.


How can I save tax as a couple?


The overall tax incidence is decreased when claiming distinct deductions under sections 80C (designated investments), 80D (medical insurance), and 24 (home loan interest), since the limits are set exclusively for individual taxpayers.


Can my wife invest money that I transfer in her name?


Yes, your wife can invest the funds you placed into her name. Nevertheless, depending on the situation, any income received from these investments may still be combined with your own income.


Can I transfer money to my wife's account to claim deductions for medical expenses?

Yes, you can deposit funds into your wife's account in order to deduct medical costs that she or your kids may have incurred.


Can I transfer money to my wife's account to avoid paying capital gains tax?

No, you cannot avoid paying capital gains tax by moving funds to your wife's account.


What are the ways to transfer money to my wife to save taxes?


Transferring funds to your wife in order to reduce taxes can be accomplished by investing in assets jointly with your spouse, maintaining funds in a joint bank account, and taking advantage of specific gift tax exclusions.



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