There is a common practice in India to purchase/transfer the assets in the wife name e.g. purchasing of immovable property in the wife name, purchasing of shares/jewellery in the wife name etc.. There can be various reasons for the same e.g. prescribed rate of stamp duty is lesser in case of females etc. Though there can be other justified reasons to buy the assets in the wife name, however, another ulterior motive also remains i.e. Tax Avoidance.
To curb this kind of situation, which can lead to tax avoidance/reduction (by using exemption slab of income free hand of wife), provisions are inbuilt in the Tax Laws for the revenue safeguard. Hence, it is very important for one to know these provisions:
- As per Income Tax Act, if an asset or income is transferred to the spouse, without adequate consideration, then for the purpose of income tax computation that income or income from that asset shall be included in the hands of transferor spouse. Exception to this rule is if asset has been transferred in connection with an agreement to live apart.
- As per Income Tax Act, similarly, if some income has accrued to spouse from a concern in which the other spouse has a stake of 20% or more. Exception to this rule is if spouse is earning that income due to holding some technical/professional qualification.
- As per Wealth Tax Act, an asset transferred to spouse, without an adequate consideration, shall be included in the net wealth of transferor spouse for the purposes of wealth tax calculation.
Hence, in nutshell, point need to note is that even if an asset is purchased in the name of spouse (e.g. wife) to save stamp duty or some other legal purposes, however, for the purposes of tax computation income from that asset must be included in the hands of spouse whose funds were involved in buying of that asset. E.g. if an immovable property is purchased by husband either jointly with wife or solely in wife name (to save stamp duty) then for the purposes of computation of Income Tax or Wealth Tax the same should be included in the hands of husband. Similarly, if from husband funds some deposits are made by wife then interest income from such deposits should be added to husband income for tax calculation purposes.
Here another important point need to know is that savings made by wife out of pin money (in other words StriDhan) does not get included in the income of husband. Similarly, non-working wives can have their source of receipts from their parents/relatives etc. Considering this, it is very important that wife should accumulate their year-by-year receipts/income by keeping a record of receipts/income, filing ITR every year, keeping the funds in bank account etc.