Interest free loan

as per my opinion there will be clubbing of income from the interest in the hands of husband.

No, I dont think that such deposits can be treated as interest free loan as there is no justification for the same. Rather it will be treated as Gift and the interest earned on the deposits will be clubbed in the hands of husband.

@ Ruchi: 

As per section 60​​, if a person transfers inco​me from an asset owned by him without transferring the asset from which the income is generated, then the income from such an asset is taxed in the hands of the transferor (i.e., person transferring the income).   

E.g., Mr. Raj has given a bungalow owned by him on rent.  Annual rent of the bungalow is Rs. 84,000. He transferred entire rental income to his friend Mr. Kumar. However, he did not transfer the bungalow. In this situation, rent of Rs. 84,000 will be taxed in the hands of Mr. Raj.​

That's what the link says-- > https://www.incometaxindia.gov.in/_layouts/15/dit/mobile/faqs/faq-questions.aspx?key=FAQs+on+Clubbing+of+Income&k=

Now what would you say?

@ Yogesh

In either case, the income will be clubbed in the hands of husband.

What is your query then, please elaborate?

@ Ruchi :

The husband is earning salary income. He has opened new bank account for her wife and he is depositing part of his salary income in her wife bank account. The wife applied for FD's and interest is earned thereon.

So, the question is why will the clubbing provision apply in this case? 

I think, that the transaction can been seen as husband making gift to her wife and wife is earning income from that gifted amount.

Hope this brings clarity in the case.

@ Yogesh

Thats what i said in my first reply....."Rather it will be treated as Gift and the interest earned on the deposits will be clubbed in the hands of husband." as sec 64(1)(iv) would apply and income would get clubbed in the hands of the transferor spouse.
 

@ Ruchi: The provision says "Income from asset" in our case the husband is mere transfering his salary. How can that be said to be "income from asset".

@ Ruchi : Any comments?

Treat it as gift no clubbing provision. 

@ Subhash : I think this makes some sense.

@ Yogesh

The salary transferred is in the form of money.... its cash.... that is asset.

@ Ruchi: No! Ruchi. You are deviated from the words of provision. It's "Income" from "Asset". Hope this helps you.

@ Ruchi: You are right. Its interpretation shall be construed as below:

The money transferred by husband is an "asset". The interest earned on FD by wife is "income". The provison shall be interpreted as "Income (i.e. wife earning interest on FD)" from "asset (which is husband's money transferred to wife)".

Taxability: Section 64(1)(iv) shall be triggered and interest earned from FD by wife shall be clubbed in husband's hand.

@ Subhash: Do you have anything to say on above interpretation?