Say husband gives money to his wife(homemaker) for personal expense. Wife spends 10% in expenditure does trading on rest of this money(short term delivery gain, intraday equity trading, F&O)
Wife earns some profit. In this case husband didn’t invest money in wife’s name directly. Wife has her own trading account with her PAN and she does this like hobby on her own.
So in this case who should pay tax on gains. husband or wife? Can it come under income tax clubbing?
If it comes under income tax clubbing how can we avoid legally?
Since your wife has invested the amount based on her skills and understanding, the income from trading will not be clubbed with your income.
For the income realized, she needs to file the applicable ITR and report the same as her income.
It is further provided in the said Section 64 that the provisions of clubbing as mentioned above would not apply to the wife of the individual if the wife possesses technical or professional qualifications and the income is solely attributable to the application of her technical or professional knowledge and experience.
The above is pertinent if the wife is drawing salary or some form of compensation from the husband (his firm, LLP) and not simply without consideration (as gift).
Now if it is not for actual application of a job, what will happen if the wife has been paying income tax on the investment returns and she is on the same slab as her husband. Will the tax paid by the wife for “returns on investment” not count ? I think the discretion of the IT officer will count in this case.
Edit:
In general, isnt all this going to be tricky? especially if the wife already has some income and the husband’s monetary gifts are not immediately invested per se, but invested 2-3 years down the line in smaller amounts.
How is this scenario?
Husband pays wife 20,000 for being homemaker (cleaning home, taking care of kids, for being teacher and nanny and cook and nurse and what not). She is qualified for all of this - has professional and technical knowledge (cooking is art and technical, teaching needs professional qualifications). Now this earning is below the slab and she can invest it freely, cant she?
if its too dramatic - just attribute it to teaching income (she teaches the kids)… I suppose an IT officer can easily accommodate if he wants to
Additionaally there’s a way out in the section itself it appears Income will not be clubbed if Asset is acquired by the spouse out of pin money (i.e. an allowance given to the wife by her husband for her personal and usual household expenses)
Eh? So if you give the spouse 30k for expenses and out of that she uses 20k to acquire MF, then no clubbing…
I doubt if all this is being enforced unless it’s a very large sum of money. Too many outs…
You don’t need to deduct TDS if it’s under taxable limit. One who pays this small salary doesn’t need a tan. These days some drivers in Mumbai earn that. People don’t deduct TDS or register tan.
Besides, you don’t need to register a company to pay sizeable salaries. Any individual (sole proprietorship) can apply for tan and deduct TDS.
On a side note, Running a company can be a world of pain, trust me! One should do it only if the business demands it and if he/she has the mindset and the staff for compliances!
There is also an ITAT ruling (502/PUN/2019) on a very similar matter. In that case, the husband had lent 94.5 lakh to his wife for doing trading in the Future and Options segment. The wife lost 31.56 lakh due to it. When the husband tried to set off that loss against his own income using the clubbing provision, the assessing officer disagreed regarding the amount that would be allowed to set off. Once the case went to ITAT, they ruled that the whole amount (31.56 lakh) would be allowed to be set off against the husband’s income as clubbing provisions would apply -
If the loss is being allowed to be clubbed, then likely even profit would also be allowed to be clubbed.
Clubbing provisions shall apply in case where husband transfers the asset to spouse without adequate considerations and if any income is earned on that asset then said income shall be clubbed under income tax act.
Here, in your case husband gives money to his wife for her personal expenses and wife invests the amount in stock which she later on earns some profits. Here, investment is considered out of the pin money and hence, clubbing provisions won’t apply.
As per Delhi Highcourt judgement in favour of R Dalmia Vs CIT (1982), pin money (i.e. an allowance given to the wife by her husband for her personal and usual household expenses) is not taxable. Further, if the asset is acquired by the spouse out of pin money then the income from such assets cannot be clubbed with the income of her husband.
Further, the liability to pay taxes on investments shall be on wife in this case.
Here you can read below clubbing provision article for more insights:
About Remuneration.
When the income transferred to wife is for consideration of salary earned from husband’s company or sole proprietorship, income will not be clubbed (tax is paid on the income by the receiving spouse), and while there is a clause saying it will be clubbed if the remuneration/salary is received by wife without actually earning it on account of some technical knowledge, this we can agree is almost never going to happen, since whether or not the spouse has earned for her/his actual work is a matter of self declaration, an appt letter and/or maybe a matter of declaration of the employer(the other spouse).
It also appears noone worries about this, and there are instances where the spouses of promoters of listed companies have received large sums as “brand ambassador” (of all things) of the company.
About the gift.
Clubbing here is possible, because on face value, it is not difficult to pin point the origin of gift, but still tricky since the clubbing is only on returns - what would happen if the investment is in a MF and is kept invested for 10+ years without any redemption and then redeemed partially over 20 years after that. I would be impressed if it was then tracked for clubbing purposes.
The word I believe is “reasonable”. This probably gives the IT officers discretionary powers. We all know nowadays 50k+ per month is ‘reasonable’ to run households.
…just joking