Gifting money to your husband or wife isn’t taxable, but the income earned from those investments may still be taxed in your hands under the Income Tax Act
There is one important distinction to understand. Gifting money to your spouse is not taxable. You won’t pay tax at the time of transferring the money. However, once that gifted amount is invested and starts generating returns, the clubbing provisions may apply. The tax rules are linked to the income earned from the gift, not the gift itself.Here’s how it works. Suppose a husband gifts his wife Rs 10 lakh, and she deposits the money in a fixed deposit. If the FD earns interest, that interest may be added to the husband’s taxable income instead of the wife’s. The same rule can apply to profits earned from investments in mutual funds, shares or gold, depending on the circumstances. However, clubbing of income does not apply in every case—it is governed by specific conditions under the Income Tax Act.Section 64 of the Income Tax Act also covers situations where a spouse receives salary, commission or other remuneration from a company or business in which the other spouse has a substantial interest. In certain cases, that income may also be clubbed with the higher-earning spouse’s income for tax purposes. However, there are important exceptions. If your spouse earns income through their own professional qualifications, technical skills or work experience, such as a doctor, lawyer, chartered accountant or software professional, that income is treated as their own and the clubbing provisions generally do not apply.Tax planning is perfectly legitimate, but it should always be done within the framework of the law. Investing in your spouse’s name does not necessarily help you avoid taxes, especially if the money earns income. Before making large investments or transferring significant amounts to family members, it’s advisable to consult a tax expert. Understanding the rules in advance can help you avoid tax notices, disputes and unexpected liabilities later.
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Many people transfer money to their spouse and invest it in fixed deposits, mutual funds, shares or gold, believing it will help lower their tax liability. While gifting money to your husband or wife is perfectly legal, it doesn’t automatically reduce your tax burden. The Income Tax Act has specific rules that determine who pays tax on the income generated from those investments.
