“CLUBBING PROVISION IS NOT APPLICABLE IF INCOME OF WIFE IS OUT OF PIN MONEY?”

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INCOME OF WIFE

Query 1]

I am an employee having income from salary only. My wife is a housewife having no source of income and living together. My simple query is:-

  1. If every month I transfer major / entire portion of my net salary from my salary bank account to my wife’s bank account (in her name only) for the purpose of meeting household expenditure and she withdraws part of such money from her bank account and spend on household expenditure, whether amount transferred by me in her bank account will be income in her hands?
  2. Out of such money transferred by me to her bank account for meeting household expenditure, if she saves money by way of spending less and invest somewhere e.g. fixed deposit, in whose hands such interest income will be taxable?
  3. Whether tax treatment may be different if I am residing in another city due to my employment and wife lives at some other place? Kindly clarify. [tusharagrawalkps@gmail.com]

Opinion:

  1. Amount transferred by you in wife’s account would not be treated as her income & nothing would be taxable upfront.
  2. U/s 64(1) (iv) of the Income Tax Act-1961, any income arising from assets (asset include cash also) 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 acquire by the spouse out of pin money then the income from such assets cannot be clubbe with the income of her husband. It is supporte by judicial pronouncement in the following cases:
    i) R.B.N.J Naidu Vs CIT (1956) 29 ITR 194 (Nag) and
    ii) R.Dalmia Vs. CIT (1982) 133 ITR 169 (Delhi).
    [Pin money is a reasonable allowance given to wife by her husband for clothing and usual household expenses.]
    In your case, income arising out of the reasonable fund of Pin Money accumulated & invested by your wife would be outside the purview of clubbing provision & would not be clubbed with your income.
  3. Above transaction won’t make any difference whether both of you live in different same city or same.

 

Query 2]

This is with reference to your column in Money- Hitavada dated 8th December regarding gift tax. Does the term any lineal ascendant or descendant of the individual include daughters/sons of sister of individual?  [rryadav1996@gmail.com]

Opinion:

Rent from house property is taxable in the hands of the owner of the property. Merely, for the reason that the rent is credit in the joint account doesn’t make income taxable in the hands of respective account holder. In your case, the fact of ownership needs to be ascertain which need to be back by investment, claim in earlier years towards housing loan repayment. If your wife also have ownership stake and you have claim the income tax benefit in earlier years on that ratio (i.e., ratio considering investment & loan share), then her share of rent would be taxable in her income also.

 
Query 3]
Please clarify whether the Interest & Installment is exempted from Tax for the 1st house even if we given it on rent. Are we require to simultaneously show the income through rent, Interest and Installment for exemption? Please Clarify. Kalyan-Kalyan.Chakravarthy@bankofindia.co.in

Opinion:

Even if the only house property own by the taxpayer is given on rent, deduction towards interest u/s 24(b). And towards Principal repayment u/s 80C of the Income Tax Act-1961 would be admissible. In such case, entire interest would be entitle for deduction without any max cap of Rs. 2 Lacs (Rs. 1.50 Lacs up to AY 2014-15) otherwise applicable in case of self occupi house property.

INCOME OF WIFE


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