I came to know that if I transfer money from my income to my wife's account, only I will have to pay income tax once as per my income slab; she need not to pay any tax for this money. However, If she invest this money, the interest earned will be clubbed with my income and I have to pay tax as per my income slab. This is as per clubbing provision of Income Tax rules.
Here comes my question: If she invest the money (received from my income) but the interest/return is not taxable, i.e. if she invest in PPF or in long term equity mutual funds (long term gain from equity MFs are not taxable presently & PPF interest also is not taxable) then what will happen? As the interest earned is non-taxable, probably it will not be clubbed with my taxable income, am I correct?
thirdly, If she re-invest the full return from equity mutual fund/PPF (including initial investment) in FDs or any other place where return is taxable, whether again clubbing provision will be applicable?
My wife doesn't have any income.
please answer
CAclubindia
