I am salaried and taxed under the 30 per cent bracket. My wife is a home maker and has no source of income. At present, I have made deposits with banks in the name of my wife, utilising her PAN.
This money is accumulated from my savings over a period of time. The interest earned for financial year 2015-16 is around ₹3 lakh. I have also invested ₹1.5 lakh in PPF in her name.
In response to your query relating to investment in your wife’s name, as per the clubbing provisions of the Income Tax Act, 1961, (‘the Act’), any transfer of an asset to spouse, without adequate consideration, attracts clubbing provisions and, accordingly, the income arising to the spouse out of the asset transferred is taxable in the hands of the transferor spouse.
However, if the spouse re-invests the income in any other income-bearing instrument and earns income therefrom, the second generation income shall be taxable in the hands of spouse only and shall not be clubbed with the transferor’s income. In your case, the interest from the deposits in the name of your wife would be clubbed with your income and taxed in your hands. Any income earned by investing the interest earned from the said deposits by your spouse will be taxed in her hands.
According to the Act, any amount paid or deposited during the year in PPF can be claimed as deduction under Section 80C. Therefore, the amount invested in your wife’s name can be claimed by her.
However, I understand that she has no taxable income during the year; therefore, it is suggested that the same may be claimed as deduction from your income. It is pertinent to note that the total deduction under Section 80C claimed by you should not exceed an overall limit of ₹150,000.
Further, in response to your query relating to investment in your son’s name, any sum received from a relative as gift is exempt from tax. The term relative includes father. In this case, I understand that your son is a major, that is, more than 18 years. Accordingly, the sum gifted by you to your major son shall be tax exempt in his hands and clubbing provisions shall not apply. The interest earned from fixed deposits shall be taxable in his hands.
In case the income from the fixed deposits in your son’s name together with any other income he has, which is chargeable to tax in FY 2015-16 is less than ₹250,000, no tax will be payable.
The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in