Loan to spouse

I Think To Escape From Clubbing Provision First Make UR Wife File and By Showing Misc. Income Just Show Bank/Cash Balance in UR Wife File (For Stock Market)& Then Invest in Shares.

Then Club Proviosn Doesnt Apply

If you  want to loan some amount to wife for investing in stock market  and charge minimum interest  say 9% p.a. from her  clubbing provisions are not attracted. But if  you show  her a trader in shares, then  only interest will be allowed to her as an expense.  

3) Is there any limit on the loan term?

No such limit as regards the term or duration of loan.

4) What are the document that needs to be prepared to make the loan contract valid? Does it have to be written on stamp paper/notarized etc?

Its not required any other formalities as above. Only things are , prepare Ledger a/c Confirmation at the year end showing the transactions of loan and interest or repayment by her if any, and make all transactions by a/c payee cheques only.

Hi,

I have different suggestion:

First thing, if possible form a HUF and introduce your money in HUF as contributiion from KARTA. Then you can invest, in name of HUF where you will be getting assistance from your wife. In this case such income will not attaract Clubbing. Further if you loan out the amount then any interest earn on that will also attract income tax and consider for the purpsoe of calculation of GTI.

Thanks

Hemant

I am agree with Mr. Paras Bafna because clubbing provision attract only on

transfer of assets and loan is not an asset for this purpose.

In addition to Mr. Bafna's comments, is it possible to transfer wife's jewellery in husband's name and give cash to wife in return, that would be interest free? I read this tip on ET wealth. I don't know if I worded it correctly, but is there anything like that ? 

making so much exercise on loan to spouse for a little sum???.............

make seperate files and deposit cash in their account, they will earn interest and capital gains through investments.........

You will have to charge interest to avoid clubbing but pay tax on that interest.  Further wife cannot deduct that interest unless it the transactions in shares are shown as business, which is fair considering that she will be dealing in shares regularly.

I gave a big loan to my wife & she invested the entire money in FD's. To prevent clubbing of her interest income with my income, I wish to charge interest on this loan. can I charge her a nominal interest of 6 % ? Is there a minimum interest rate specified ? 

Even if you charge interest at nominal rate, the opinion of Assessing Officer will play a crucial role.

He may tax the benefits received by your wife,

in your hand,

by invoking the clubbing provisions. 

Mr. Paras Bafna,

Thanks for your reply. I loaned Rs 15 lakhs to my wife, which she invested in FD's.  I now plan to charge her interest @ 9 %. I will pay Tax on the interest received from her. She will not deduct the interest paid (to me)  from her taxable income. Will her income still be clubbed with mine ? 

If  I do not claim interest from her & her income is thereby clubbed with mine, will the clubbing be for only  1 financial year or will it be every year, for ever, or until she returns the loan to me ?

If you have given as a loan to ur wife and charging interest on it than wife’s income will not club in your income. And it will be clubbed until she don’t returns loan to you

Mr. Mohan,

"Rs 15 lakhs to my wife, which she invested in FD's.  I now plan to charge her interest @ 9 %."

If she is getting 10% interest on FDR then you can not be made liable to pay tax on an amount exceeding 10%.

Out of 10% you are already showing income of 9% so maximum 1% may further be be added by invoking the clubbing provisions. Looking towards the reasonability aspect, I would advice not to club 1% in your income. Let the work be left for AO.

I will pay Tax on the interest received from her. She will not deduct the interest paid (to me)  from her taxable income. Will her income still be clubbed with mine ? 

She can claim interest paid to you as an expenses against the income received from FDR.

If  I do not claim interest from her & her income is thereby clubbed with mine, will the clubbing be for only  1 financial year or will it be every year, for ever, or until she returns the loan to me ?

Ans. Not forever, until she returns the loan interest can be clubbed.

Mr. Mohan

1st thing U gave a loan to your Wife  - OK

2nd thing U chage int @ 9% p.a. and show it as your income - ok

3rd thing She claims that interest paid as expense - ok

4th thing To avoid tax She should show some extra income like misc. income of around say 100,000 rs to avoid application of clubbing provision.

Thanks Pankaj, Paras & Rahul, for your good advise. Till last year, I was an NRI & gave several gift cheques to my wife & adult sons, from my NRE bank acct. They invested these gifts in FD's.  I presume that no clubbing of income will take place on interest earned by them ?

Regards

Mohan