Income Tax Effects of Giving Money to Spouse

Income Tax Effects of Giving Money to SpouseI am a salaried person and filling my income tax return regularly. Every month I am paying Rs.30, 000 to my wife for our household expenses. She has accumulated around Rs. 2, 50,000 from the money I gave to her for house hold expenses over a period of 8 years.

Now she has invested the entire accumulated money in a fixed deposit scheme of a bank. Will the interest amount be included in my taxable income due to clubbing provision of IT act?

Income generated out of an asset transferred to spouse will get clubbed in the hands of that individual who has transferred such asset. But if the amount has been accumulated from the household expenses then this clubbing provision will not be applicable. 

As such the entire interest amount received by your wife from fixed deposit will not be getting clubbed in your hand. Your wise will be taxable for such interest amount if her income exceeds the basic exemption limit of income tax (for assessment year 2013-2014 the basic exemption limit is Rs. 2, 00,000). 

Last year I have gifted Rs. 5, 00,000 to my wife for investing in a beauty saloon owned by her friend. She got a very good return out of it. Now I am planning to file income tax return for her. Can you suggest how her income will be taxable?

As per the existing provisions of IT act, any money gifted without consideration in excess of Rs. 50, 000 will be treated as income. However there is exclusion to the same provision which includes a sum given to one spouse by another. Because of this exclusion the money gifted by you to your wife will not be taxable.

However another provision of IT act states, if any asset has been transferred by one spouse to another without adequate consideration then the income generated out of such asset will get clubbed in the hands of that individual who initially transferred the asset. In your case you have transferred Rs. 5, 00,000 which has generated certain income in the hands of your wife. As per the clubbing provision of IT act discussed above the entire amount generated out of the gifted amount will be taxable in your hand.

We both are living in rented house at Bangalore for which we both (my wife and I) share the rent paid to our owner. Can we both claim the benefit of rent paid under section 80GG?

Section 80GG of IT act is available to an individual if he is not in receipt of house rent allowance, such individual or spouse or minor child has not owned a house and rent has been paid during the financial year. Available deduction under this section is lower of the followings;

  • Rs. 2, 000 per month or
  • 25% of adjusted total income or
  • Rent paid in excess of 10% of adjusted total income

Adjusted total income = income after all deduction under chapter VI – A but before deduction under section 80GG.

No where in this section it has been specified that, if one spouse is claiming the benefit of section 80GG then the other spouse can not claim the same for the rent they both shared.

In your case, you both can claim the benefit of section 80GG if you satisfy all other conditions.

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