“Thinking of gifting money to your spouse to save on taxes? Think again! 🤯 Many believe this is a smart tax move, but the Indian Income Tax Act has specific “clubbing provisions” (Sections 60-64) that prevent it.
Thank you for reading this post, don't forget to subscribe!Here’s why gifting to your spouse (or other family members) won’t typically reduce your tax burden:
- Income without Asset Transfer (Section 60): Transferring just the income, not the asset itself? That income is still taxed in your hands.
- Revocable Asset Transfers (Section 61): If you can take the asset back, any income it generates is taxable to you.
- Spouse’s Salary from Your Business (Section 64(1)(ii)): If your spouse draws a salary from a firm where you have a significant interest, that income gets added to your taxable income.
- Assets Gifted to Spouse (Section 64(1)(iv)): This is crucial! If you transfer assets to your spouse without receiving fair value, any income from those assets is clubbed with your income.
- Gifts to Daughter-in-Law (Section 64(1)(vi)): Similar to spouses, income from assets gifted to your daughter-in-law without consideration is taxed to you.
- Minor Child’s Income (Section 64(1A)): Generally, a minor’s income (unless from manual work, talent, or disability) is added to the higher-earning parent’s income.
- Property Gifted to HUF (Section 64(2)): Income from your self-acquired property transferred to a HUF without consideration remains taxable to you.
The bottom line? The law is designed to ensure you don’t reduce your tax liability by simply re-routing income within the family. Don’t fall for this common tax myth!
