Clubbing and reflection income in husband and wife ITR

This is a common and important query involving clubbing of income under the Income Tax Act (specifically Section 64(1)(iv)), when funds are transferred between spouses.

Let’s break it down and guide you on how to correctly reflect this in both the husband's and wife's ITRs, particularly given that Form 26AS of the wife reflects the interest income, but it should be taxed in the hands of the husband.

✅ Scenario Recap:

• Husband gifts ₹10 lakh to wife.

• Wife invests in a Senior Citizen FD (presumably in her name) using this amount.

• The interest income is reflected in the wife’s Form 26AS (since TDS is deducted in her PAN).

• But under clubbing rules, the interest income is taxable in husband’s ITR under Schedule SPI.

• Wife also has other independent income, so she needs to file her ITR too.

🧾 Legal Provision:

Under Section 64(1)(iv) of the Income Tax Act:

Income arising to a spouse from assets transferred without adequate consideration is clubbable in the hands of the transferor (i.e., the husband).

Therefore:

• Interest income from the FD must be reported and taxed in husband's ITR.

• Wife is not taxed on it even if it appears in her 26AS.

✅ Filing Guidance – How to Reflect in Both ITRs

👨‍💼 Husband's ITR (where tax is actually paid):

1. Report Interest Income in “Schedule SPI”:

   • Report the FD interest under Schedule SPI (Income of specified persons includible in assessee’s total income).

   • Mention wife’s PAN and relation.

   • Nature of income: “Interest from FD gifted amount”.

   • The amount will auto-reflect in total income.

2. Show in “Income from Other Sources”:

   • Also include the interest income in the usual "Income from Other Sources" section.

   • Schedule SPI is for disclosure — the actual taxing happens here.

👩‍💼 Wife's ITR (to match 26AS, but avoid double taxation):

Since the FD is in her name and TDS is deducted on her PAN, the interest income appears in:

• Her Form 26AS

• Her AIS/TIS

But she should not pay tax on it again, because it's already clubbed in husband’s ITR.

So she needs to disclose the income, but not offer it to tax.

Here’s how:

1. Declare Interest Income under 'Income from Other Sources'

   • Enter the same FD interest (as per 26AS).

2. Claim Exemption under 'Exempt Income' or 'Schedule EI' (depending on ITR form):

   • Use the remarks field to mention:

     "Interest income clubbed in husband’s ITR u/s 64 – not taxable in my hands"

3. Alternatively, in some ITRs (like ITR-2/3), you can also reduce it from taxable income using:

   • “Others – Income not chargeable to tax” section or by showing negative entry in "Income from Other Sources" (if software allows).

4. Attach a note in the 'Schedule SPI' / 'Explanatory Notes' section (if available in the ITR form or software):

   • Clearly mention:

     “FD interest income of ₹__ pertains to amount gifted by husband. Income is offered in his return under Schedule SPI. Reflected in 26AS under my PAN due to TDS deduction by bank.”

✅ TDS Credit Mismatch?

• Since TDS is deducted on wife's PAN, she will get the TDS credit in her 26AS.

• But husband is paying tax on that income.

👉 Solution:

There are 2 approaches:

Preferred: TDS Transfer via Form 26A/Declaration (Not Practical for Individuals)

This is not feasible for most individual cases, as banks won’t change TDS details retroactively.

Workaround: Husband pays tax, wife claims TDS but adjusts via refund

• Wife files ITR, claims TDS reflected in 26AS, but does not offer the income to tax.

• This results in a refund of TDS to her.

• Husband pays full tax on that income in his return.

✅ Net result: Tax is paid by husband, wife gets TDS refund – matches legal requirements and 26AS.

🔚 Summary