Thread by @manansmehta5

Can you gift money to your spouse to use their lower tax slabs?

I've been asked this question at least once each week.

Here's a thread 🧵

In certain special cases income of another person is included (i.e. clubbed) in the taxable income of the taxpayer and in such a case he will be liable to pay tax in respect of his income as well as income of other person.

This is commonly called clubbing of income.

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Why does clubbing of income exist?

In the case of individuals, income-tax is levied on a slab system on the total income.

The tax system is progressive i.e. as the income increases, the applicable rate of tax increases. Some taxpayers in the higher income bracket have a..

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tendency to divert some portion of their income to their spouse, minor child etc. to minimize their tax burden.

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In order to prevent such tax avoidance, clubbing provisions have been incorporated in the Act, under which income arising to spouse, minor child etc. have to be included in the income of the person who has diverted his income for the purpose of computing tax liability.

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Clubbing of income of spouse

This is the one where you need to be most careful.

A lot of people have this idea where they will transfer money to their spouse (who has no income) and make a fixed deposit or other investments in the spouse’s name.

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This doesn’t work because of the concept of clubbing of income.

The income of the spouse would be clubbed in the hands of the transferror.

So you can't actually save any taxes this way.

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More on clubbing provisions here:

#incometax #taxIndia #clubbingofincome

thegalacticadvisors.com/clubbing-of-in…