My wife is given some money every month for house hold expenses ,she also received some money from her son. She saved some money and invests in Mutual funds and also in equality. She has started filling income tax returns.,even though her income is less than 3 lac. As money invested is also out of funds given by me. Is there any liability of tax on me.
Ans: Understanding Tax Implications for Gifts and Investments
1. No Tax on Money Given to Your Wife
Money transferred to your wife for household expenses or gifts is not taxable.
Gifts given to your wife are exempt under Section 56(2) of the Income Tax Act if given without consideration.
2. Clubbing of Income Rules
Income earned from the money you gave to your wife could be taxable under your name.
As per Section 64(1)(iv) of the Income Tax Act, any income earned by your wife from assets funded by you will be clubbed with your income.
3. Taxation on Income from Investments
Dividend Income or Interest Income: If your wife earns interest or dividends from the investments made using your funds, this income will be added to your taxable income.
Capital Gains from Investments: Income from the sale of mutual funds or equities (capital gains) is taxed in her name since it's her investment decision. It will not be clubbed with your income.
4. Money Received from Son
Any money your wife receives from her son is exempt under the Income Tax Act as it is considered a gift from a relative.
Income generated from such funds (e.g., interest, dividends) will be taxed in her hands.
5. Filing of Income Tax Returns by Your Wife
Filing returns is a good practice, even if her income is below the taxable threshold.
This ensures her financial independence and tracks her income and investments systematically.
What Should You Do?
1. Maintain Proper Documentation
Keep records of the money transferred to your wife. This helps establish the source of funds.
Document the funds received by your wife from her son.
2. Separate Accounts for Clarity
Encourage your wife to maintain a separate bank account for her investments.
This will ensure transparency and clarity in case of future tax assessments.
3. Monitor Clubbing Provisions
Regularly review investment income to check if it’s liable for clubbing.
Capital gains are not clubbed, so your wife can continue her equity and mutual fund investments.
4. Seek Professional Guidance
Consult a Certified Financial Planner or a Chartered Accountant.
They can help you structure investments and income to minimise tax liabilities.
Final Insights
There is no direct tax liability on you for money gifted to your wife. However, income from such funds may get clubbed with your income as per tax laws. By planning investments and maintaining proper records, you can manage tax compliance efficiently.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment