Tax Benefits for Couples: Know how Husband and Wife can save Tax

Many people believe that transferring money between spouses is a way to sidestep taxes. While there is some truth to this idea, the situation is more complex than it might seem. Let’s break down the tax implications of such transfers and clarify how you can manage them effectively.

Money Transfers Between Spouses: What You Need to Know

Transferring money to your spouse’s account, such as to cover personal expenses or support a new business venture, might seem like a tax-free move. However, it’s essential to understand the tax rules that apply to these transfers:

1. Income Clubbing Rules: If your spouse invests the money you give them into assets like shares or fixed deposits, the income generated from these investments is usually considered part of your income. This means it will be taxed according to your income tax slab. For instance, if you transfer money to buy shares in your spouse’s name, any gains from these shares will be clubbed with your income.
2. Property Transfers: If you transfer property to your spouse, such as a house, and the transfer doesn’t involve an adequate financial consideration (payment), the income from this property, like rental income, will still be taxed in your hands. Even though your spouse becomes the legal owner, the income remains your responsibility due to clubbing provisions.
3. Loans vs. Gifts: If you provide a loan to your spouse, the situation is different. If the loan is given with a reasonable interest rate and documented properly, the income generated from investments made using this loan will not be clubbed with your income. This means your spouse can invest the loan amount in shares or other assets, and the returns will be considered their income, not yours. However, it’s crucial to have proper documentation to prove the loan’s legitimacy to tax authorities.
4. Interest-Free Loans: Be cautious with interest-free loans. If you decide to waive off the interest on a loan, this might be interpreted as a gift or an asset transfer, which could lead to tax complications. Such transfers are scrutinized to prevent misuse for tax avoidance.
5. Homemaker Considerations: If your spouse is a homemaker with no other income, the money you provide them for personal expenses won’t be taxed as their income. However, any interest earned from this money in their bank account could be clubbed with your income.

Tax Benefits for Spouses

There are several tax-saving opportunities available for married couples. Here’s how you can maximize tax benefits:

• Long-Term Capital Gains: Under Section 112A, you can claim a tax exemption of up to ₹1 lakh annually on long-term capital gains from equity shares or mutual funds, provided Securities Transaction Tax (STT) is paid. Both spouses can utilize this exemption by investing jointly.
• Health Insurance: Section 80D allows a deduction of up to ₹25,000 for health insurance premiums. If you and your spouse both have separate policies, you can both claim deductions, thus maximizing your tax savings.
• Education Expenses: Under Section 80C, you can claim a deduction of up to ₹1.5 lakh for educational expenses for up to two children. If there are additional children or higher expenses, the other spouse can claim the excess amount.
• Home Loan Benefits: Both spouses can claim deductions for home loan repayments and interest if they are co-borrowers and joint owners of the property.
• Leave Travel Allowance (LTA): If both spouses are employed, they can claim deductions for up to four journeys in four years under LTA, rather than just two.

Final Thoughts

Managing money transfers between spouses and understanding their tax implications requires careful consideration. By leveraging the available tax benefits and adhering to the rules, you can optimize your tax savings and avoid potential issues with tax authorities. Always keep detailed records and consult with a tax professional to ensure compliance and make the most of these opportunities.