Rules Income Tax: Transfers to Wife Repeatedly Disburthened Monthly May Invite Tax Checking
In case you habitually transfer funds to your wife to meet her monthly needs, current explanations of income tax provisions make it prudent to know why. There is a specific clause in the Income Tax Act that requires the tax department to scrutinise such transfers, particularly in those cases where such transfers have not been substantiated or even explained.
Experts have stated that it is normal for money could be transferred to a spouse as a household expense, but the Income Tax Department may issue notices when the amount paid by the spouse is considered to be very high, erratic or the money is invested in taxable assets. Section 64 of the Income Tax provides that any income received on an asset or the money received as a gift to a spouse may be clubbed in the income of the transferor.
This implies that when you make a transfer of funds and your wife invests it, say in fixed deposit, mutual funds or property, the earnings of such investments will be considered as part of your taxable income.
Why This Matters
The core focus of this rule is to ensure that tax evasion is avoided by the use of indirect transfers. When the money is spent simply on day to day household expenses, then the money is unlikely to cause any tax complications. But when it is utilised in a revenue-earning enterprise without any clear documentation, it might manifest in investigations.
Common Mistakes to Avoid
Tax consultants warn against transferring a large sum of money that lacks both a track and a reason. Most of the taxpayers have an assumption that they will never be asked questions about sending money to their wives, since he or she is a beneficiary of the money, but the law does not regard it as such when it comes to creating an income. Even the transfer of cash without a bank record could give some challenges in defending the transaction in case of any difficulty.
What the New Income Tax Bill Says
The shift of the income taxation system will be more tightened in terms of compliance and transparency. This notion is strengthened by the bill that provides that income derived from an asset or fund transferred to the spouse will be taxed in the hands of the transferor, not the recipient. It also highlights the importance of a source of the money and an adequate description of the purpose to be documented. The provisions are proposed because they are aimed at simplifying reporting and the ability of the department to trace such transactions.
Remitting money to your wife as monthly support is not a crime, but a proper, clear record should be held about it, and it should also be a reasonable amount, and it should not be a vehicle to take away taxable income. The taxpayers should take extra care, as more compliance measures are in the pipeline that will make things stricter.
The transfer of money to your wife to support her monthly expenditure is not a crime, but a proper record should be kept.
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