New Delhi:
Taxpayers often seek ways to reduce their tax liability.
One effective method involves utilizing the “clubbing provision” in the Income Tax Act, specifically sections 60 to 64.
This provision allows individuals to transfer some of their income or property to their spouse or minor children to save on taxes.
How the Clubbing Provision Works
The clubbing provision states that if you transfer money to your wife and that money generates income (e.g., interest or dividends),
this income is added to your taxable income.
However, if you gift the amount to your wife,
the tax is not levied on the transfer itself but on the income generated from it.
Strategies to Save Tax
1) Investments in Your Wife’s Name
If your wife has a low or no income, investing in her name can be beneficial. Consider investments like:
- Fixed Deposits
- Mutual Funds
- Public Provident Fund (PPF)
These investments can reduce your taxable income by shifting the tax liability on the returns to your wife, who may be in a lower tax bracket or not subject to tax at all.
2) Deposits in Savings Account
By depositing money in your wife’s savings account, you can save on the interest earned from the deposit.
The interest on a savings account is eligible for income tax exemption up to ₹10,000.
This can help reduce your overall tax liability while taking advantage of the interest earned.
