Transferring money to spouse for investing in stocks

Tax queries 353 views 5 replies

Ashok

Engineer

48 Points Posted on 11 July 2020

Hello,

1) If a person transfers money to spouse's account for investing in stocks, how will taxes on returns be treated if they fall in different tax brackets?

To be specific, capital gains is taxed at flat rates (15%/10% for STCG/LTCG) and not dependent on individual tax bracket. So if a person in 30% bracket transfers money to spouse who is in 20% bracket, and the spouse invests this money in stocks, at what rates will the returns be taxed? 30% or 20% or at flat rates (STCG/LTCG)?

2) Is it legal to do so?

Thanks in advance.

Replies (5)

CA Raj Doshi

Practising CA

8954 Points Posted on 11 July 2020

1. It is legal. It can be shown as loan advanced to spouse.

2. STCG AND LTCG shall be taxed at flat rates irrespective of tax bracket.

SUSHANT BIDAYE

721 Points Posted on 11 July 2020

Clubbing provisions need to be checked u/,s 64.

more facts required for a correct opinion

CA Naveen Chand

Chartered Accountant

12739 Points Posted on 11 July 2020

clubbing shall be attracted and the income from such shares shall be clubbed in the hands of husband

CA Raj Doshi

Practising CA

8954 Points Posted on 12 July 2020

Show it as a loan instead of a gift. Clubbing wont come into play

Ashok

Engineer

48 Points Posted on 12 July 2020

Hi,

Thanks everyone for your response.

1) Based on your reply, I searched Google about loans to spouse. Some articles suggest that it should be given at a reasonable interest- around 6%. What if it is given as an interest-free loan?

2) If it is true that interest has to be charged, wouldn't the lender end up paying taxes on the interest received from spouse? To me it sounds like a lot of additional taxes.

Case 1: Rs. 100 given as gift from husband (30% tax bracket) to wife (20%). So the profits are taxed at husband's tax bracket of 30%.

Case 2: Same 100rs given as loan at 6%. Assume wife makes 10% profit on which she pays 15% STCG. So post-tax she has Rs.108.5. But she also has to pay 6rs as interest to husband. So she is left with only 102.5rs.

Husband pays 1.8rs as tax (30% of 6rs) on the interest received. So he gets to retain only 6-1.8 = 4.2rs. So total amount with the couple = 102.5+4.2 = 106.7rs. In other words, the effective tax paid out on the profits is (110-106.7)/10= 33%!!

Summary: This shows that if the spouse (wife) needs money to invest in stocks, it is better to buy stocks in the name of husband with husband's money, by the wife, without involving any transfer of money between them. This way only STCG/LTCG needs to be paid at flat 10/15%. Am I correct?