Query 1]

Sir, I have following questions. Can you clear them please

  1. I am a housewife. I am able to save Rs. 2000/- to Rs. 3000/- per month from household expenses given by my husband and putting it my SB account. I am having PAN card. I have accumulated Rs. 60,000/- so far.
    a) I would like to put some amount in Bank Fixed deposit or company NCD and
    b) some amount in Reliance Gold Savings fund.
    My husband has paid the income tax on the amount given to me for household expenses. The interest that I will get from FD or NCD, will it be tax free as it is in my name or it is to be add to my husband’s income?
  2. What are the tax implications for gold savings fund if I redeem within one year and after one year?
  3. This is regarding investment in Chit fund. We took a chit for Rs. 1 Lacs for 50 months. Due to bidding the total amount we pay over 50 months is around Rs. 80,000/- and we get around Rs. 95,000/- after deduction of commission by company on completion of chit. I think that he has to pay tax on this gain (i.e. Dividend) of Rs. 15,000/-. Whether tax is to be
    a) paid every year on the accumulated dividend or
    b) on completion of the chit. Dividend is shown in pass book & not paid till completion of chit.
  4. If he bids in between, say after 35 months, and get Rs. 90,000/- (at 10% loss, 5% commission to company & 5% which is dividend to all members). After 35 months chit amount paid is Rs. 55, 000/- & dividend is Rs. 15000/- and till completion of chit we would be paying around Rs. 80,000/- (Rs. 55,000/- + Rs. 25,000/-) for remaining period). We are confuse whether gain to be take as Rs. 35,000/- (Rs. 90,000/- (-) Rs. 55,000/-) or Rs. 10,000/- (Rs. 90,000 – Rs. 80000). Please help. [Lakshmi-]


  1. U/s 64(1) (iv) of the Income Tax Act-1961, any income arising from assets transferred to spouse without adequate consideration is taxable in the hands of the transferor and not in the hands of transferee.
    However, if asset is acquired by the spouse out of pin money (i.e., an allowance given to the wife by her husband for her dress and usual household expenses) then the income from such assets cannot be clubbed with the income of her husband.
    [R.B.N.J Naidu Vs CIT (1956) 29 ITR 194 (Nag) and
    R.Dalmia Vs. CIT (1982) 133 ITR 169 (Delhi).] Resultantly, the income arising out of the reasonable fund of Pin Money accumulated & invested need not be clubbed with the income of your husband. The same could be treat as your income.
  2. Investment in a gold savings fund enables you to avail the benefit of long-term capital gains tax, after the period of one year of its holding. However, any sale of the fund before the period of 1 year would attract short-term capital gains tax & is treated as your other regular income.
  3. Income/Loss from chit could best be known only on the completion of the chit tenure. Till completion, the amount of loss/ surplus could not be ascertain in certainty. We are of our considered opinion that, for the purpose of Income Tax, the income/loss should be recognized at the completion of the tenure only.
  4. The question of taxability of Rs. 35,000/- does not arise at all. To be precise, you are contributing Rs. 80,000/- & getting Rs. 90,000/- from the chit Fund. Your income from the chit would be Rs. 10,000/- only and the same would be your income for the purpose of Income Tax.
    The most important & equally controversial issue is about the taxability of this surplus..
    There is no specific provision in the Income Tax Act -1961 for taxing or exempting the income from Chit funds. Divergent view prevails as to the tax implication of loss/surpus from chit funds.
    i] There is one school of thought which believes that the amount is taxable as the same would come within the broader definition of income. Instruction No. 1175 [F.No. 169/21/78–IT(80)], dt. 16-5-1978] issued by the Central Board of Direct Tax says that
    ”(b) In the hands of the subscribers, a few will be receiving more than what they have subscribed. This extra amount is the nature of interest and as such, taxable. Members who take the money earlier from the chit will necessarily have to contribute more which means that they incur loss, which is nothing but interest paid for moneys taken in advance. The claim of such a loss will have to be consider for the purpose of allowance according to the provisions of the Act depending upon how the money was utilise by the subscriber.”
    b] The other school of thought believes chits are organized by chit companies & every chit group forms an association. The members of such association make contribution to a common fund and lend it to the successful bidder (or the winner of the lot in case of lottery chits), who has necessarily to be a member of the group, so that the transactions are always confin to members except for the fee paid to the organizer for his service out of the collections. As a result, every chit is therefore, an instance of a mutual activity & the surplus should not be taxable on the principle of mutuality. The same inference could be drawn from Soda Silicate and Chemical Works v CIT (1989) 179 ITR 588 (P&H).

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