There are several ways to save tax, and one lesser-known but interesting method is transferring money to your wife’s account.
While this can be a smart strategy, it’s crucial to understand the rules. If you transfer money to your wife’s account and she invests it, the income generated may be added to your taxable income.
However, with proper planning and by using the clubbing provision effectively, you can save on taxes. Let’s explore this method in detail.
How Does This Method Work?
The method of saving tax by depositing money into your wife’s account falls under the ‘clubbing provision.’
According to Sections 60 to 64 of the Income Tax Act, if you transfer money to your wife’s account and it generates income (such as interest, rent, or dividends), that income is added to your total income and taxed accordingly. This process is known as the ‘clubbing provision.’
Exemption from Gift Tax
If you give money as a gift to your wife, it is exempt from gift tax. However, any income earned from this gift, such as interest or dividends, can be added to your income under the clubbing provision.
Ways to Save Tax Through Investments
If your wife has little or no income, you can invest in her name through options like fixed deposits, mutual funds, or PPF. This can reduce the tax liability on the income generated.
Save Tax Through HRA
If your house is registered in your wife’s name, you can pay her rent and claim the HRA (House Rent Allowance) benefit.
This helps lower your taxable income and allows you to claim a tax exemption.
Saving Through Loans
Instead of giving a gift, you can offer a loan to your wife at a low-interest rate.
This avoids income clubbing, but ensure all transactions are properly documented for transparency.
Transfer Money to Savings Account
By depositing money into your wife’s savings account, you can save tax on the interest earned. There is an income tax exemption of up to ₹10,000 on savings account interest.
What You Should Do
Invest in your wife’s name to ensure the income generated is taxed less. Use the clubbing provision correctly and try to save tax through HRA.
What You Should Not Do
Avoid providing incorrect information related to taxes. Do not overlook the clubbing provisions. Never make financial decisions without fully understanding them.
How Can You Save Tax?
First Method: If you are about to get married, any property or gifts given to your future wife before the marriage won’t fall under the clubbing of income provision.
Second Way: If you provide money to your wife for her expenses and she saves it, that income won’t be added to your income.
Third Way: Save tax by paying for health insurance. Under Section 80D, you can save up to Rs 25,000 on health insurance premiums for your family.
Fourth Way: Instead of gifting money, you can give a loan to your wife at a low-interest rate. Just ensure all transactions, including the loan and interest payments, are properly documented. This will prevent income clubbing and help reduce your tax liability.
Fifth Way: Open a joint account for investments, but ensure the primary account holder has the lower tax liability. In joint accounts, the tax on interest is paid by the primary holder.
