There are many ways to save tax, but one such method which is very interesting and many people do not understand it completely is to transfer money to the wife’s account. This can be a wise move, but it is important to understand its rules. If you transfer money in your wife’s name and she invests it, then the income from it can be added to your income. But, by planning properly, you can save tax by taking advantage of the clubbing provision. Let’s understand this trick in detail. 

How does this method work?

The method of saving tax by depositing money in a wife’s account comes under ‘clubbing provision’. Sections 60 to 64 of the Income Tax Act say that if you deposit money in your wife’s account and any income is generated from it (such as interest, rent, dividend), then that income is added to your total income and tax is levied on it. This is called ‘clubbing provision’.

Exemption from gift tax

If you gift any money to your wife, there is no gift tax on it. However, the income from this can be added to your income under the clubbing provision.

Save tax through HRA

If your house is in your wife’s name/parent’s name, you can avail the benefit of HRA by paying rent to her. This will reduce your taxable income and you will be able to claim tax exemption.

Saving through loans

If you give a loan to your wife at a low interest rate instead of a gift, then it will not lead to income clubbing. Keep in mind that all transactions are documented.

Transfer money to a savings account

By depositing money in your wife’s savings account, you can save tax on the interest earned on it. Income tax exemption of up to ₹10,000 is available on the interest on savings account.

What should be done?

Invest in the name of your wife so that the income received is taxed less. Use the clubbing provision properly. Try to save tax through HRA.

What should or should not do?

Do not give wrong information in the eyes of tax. Do not ignore clubbing provisions. Do not take any financial decision without understanding.

How can you save tax?

First method- Those who are about to get married, if they make any property or gift in the name of their would-be wife before marriage, then it will not come under the provision of clubbing of income.

Second way- If you give money to your wife for expenses and she saves it, then that too will not be added to your income.

Third way- You can also save tax through health insurance. Under the section 80D, you can save up to Rs 25,000 on health insurance premium in the name of the family.

Fourth way- You can save tax by giving a loan to your wife instead of gifting her money. You can give her a loan at a low interest rate. You should just keep everything documented from giving the loan to receiving the interest. This will ensure that the income of both of you is not clubbed and your tax liability will be reduced.

Fifth way- You can also open a joint account for investment, but the primary holder should be the one whose tax liability is less, because in a joint account, the tax liability on interest is borne by the primary holder.

~Navneet Shukla